Small Company under the Companies Act, 2013 — Revised Thresholds (2025)

Small Company under the Companies Act, 2013 — Revised Thresholds (2025)

The 'small company' classification is one of the most consequential definitions in the Companies Act, 2013, since it determines eligibility for a wide range of compliance relaxations — fewer board meetings, simplified annual returns, exemption from cash flow statements, and lower penalties. In a major ease-of-doing-business reform, the MCA significantly widened this definition with effect from December 2025.

A small company means a private company (other than a holding company, a subsidiary company, a company registered under Section 8, or a company or body corporate governed by any special Act) whose paid-up share capital does not exceed a prescribed amount, and whose turnover as per its last profit and loss account does not exceed a prescribed amount.

•      Paid-up share capital: not exceeding ₹10 crore (increased from ₹4 crore).

•      Turnover: not exceeding ₹100 crore (increased from ₹40 crore).

•      Both conditions must be satisfied simultaneously for a company to qualify as a 'small company'.

•      Effective from 1 December 2025, per MCA Notification G.S.R. 880(E).

•      Cash flow statement not required as part of financial statements.

•      Annual return can be filed in the abridged Form MGT-7A instead of the full MGT-7.

•      Only 2 board meetings required in a calendar year (instead of 4), with a minimum gap of 90 days between them.

•      Auditor rotation requirement under Section 139(2) does not apply.

•      Lower penalties for many defaults — penalties for small companies and OPCs are generally capped at half of what applies to other companies, subject to a maximum specified limit.

•      Board's Report can be prepared in an abridged format covering only prescribed matters.

The revision reflects the government's broader push to rationalise compliance for genuinely small and mid-sized businesses, many of which had outgrown the older ₹4 crore/₹40 crore limits purely due to inflation and business growth, without becoming large enough to warrant the fuller compliance regime applicable to bigger companies.

•      Continuing to file the full MGT-7 and prepare a cash flow statement even after qualifying as a small company, adding unnecessary work.

•      Assuming a subsidiary or holding company can qualify as 'small' — these categories are specifically excluded regardless of size.

•      Failing to notice when growth pushes the company back out of the small company bracket, and continuing to claim relaxations incorrectly.

•      Overlooking that the revised thresholds only apply from the effective notification date, not retroactively.

Q1. Do both the capital and turnover conditions need to be met to qualify as a small company?

Yes, a company must satisfy both the paid-up capital and turnover thresholds simultaneously; if either exceeds the prescribed limit, the company does not qualify as a small company.

Q2. Can a public company ever be classified as a small company?

No, the small company definition under Section 2(85) is specifically restricted to private companies (excluding holding companies, subsidiaries, Section 8 companies, and companies under special Acts); public companies cannot be small companies regardless of their size.

Q3. What happens if a small company's turnover or capital exceeds the threshold in a later year?

The company would then cease to qualify as a small company from that year onward and must comply with the fuller set of requirements applicable to other private companies, including holding 4 board meetings and preparing a cash flow statement.

Q4. Does the revised threshold apply retroactively to earlier financial years?

No, the enhanced thresholds apply prospectively from the effective date of the notification (1 December 2025); companies should check the applicable limits for the specific financial year in question.

Q5. Do the revised small company thresholds automatically apply, or does a company need to apply for the status?

The classification is automatic based on meeting the statutory paid-up capital and turnover criteria as reflected in the latest audited financial statements — no separate application is needed to claim small company status.

Q6. Does small company status affect statutory audit requirements?

No, every company, including a small company, still requires a statutory audit; the relaxations apply mainly to meeting frequency, filing format, cash flow statement exemption, and auditor rotation, not to the audit requirement itself.

Q7. Will the government revise these thresholds again in the future?

The MCA periodically reviews thresholds as part of ease-of-doing-business reforms; companies should keep checking official notifications rather than assuming the December 2025 limits are permanent.

The 2025 revision to the small company definition is one of the most impactful recent changes under the Companies Act, 2013, bringing a much larger pool of private companies into a lighter compliance regime. Companies close to the old thresholds should reassess their classification promptly to take advantage of the relaxed requirements.