MCA's Game-Changing Update: The New Definition of Small Companies in India

Posted on December 4, 2025 | By Jaivindra Singh, Company Secretary

In a move that's set to ease the compliance burden for thousands of startups and growing enterprises, the Ministry of Corporate Affairs (MCA) has just notified significant revisions to the definition of "small companies" under the Companies Act, 2013. Effective immediately through the Companies (Specification of Definition Details) Amendment Rules, 2025, these changes expand the eligibility criteria by hiking the financial thresholds. If you're running a business that's been teetering on the edge of "small" status, this could be the relief you've been waiting for.

As a Company Secretary with years of experience guiding Indian businesses through regulatory mazes, I've seen firsthand how simplified compliance can free up time and resources for innovation. Let's break down what's new, how it compares to the old rules, and what it means for your company.

The Old vs. New: A Quick Comparison

Under Section 2(85) of the Companies Act, 2013, the definition of a small company has always hinged on two key metrics: paid-up share capital and annual turnover. The MCA's update, notified just days ago, doubles down on inclusivity by raising these limits substantially.

Here's a side-by-side look:

CriteriaPrevious Threshold (Pre-2025)New Threshold (2025 Onward)Paid-up Share Capital₹4 crore or less₹10 crore or lessAnnual Turnover₹40 crore or less₹100 crore or less

Source: Companies (Specification of Definition Details) Amendment Rules, 2025

This isn't just a numbers game—it's a strategic shift. The revised limits mean more companies, especially in sectors like tech, e-commerce, and services, will now qualify as "small." Importantly, these thresholds are calculated based on the figures as of the last financial year, so businesses can plan accordingly.

Why This Matters: Unpacking the Benefits

Being classified as a small company isn't just a label; it's a compliance superpower. The MCA's rationale? To reduce red tape for genuine SMEs, fostering easier growth without drowning them in paperwork. Here's how the updated definition unlocks real advantages:

1. Streamlined Annual Filings: Small companies can now file a simplified annual return using Form MGT-7A instead of the detailed Form MGT-7. This cuts down on disclosure requirements and saves hours (and rupees) on preparation.

2. No More Cash Flow Headaches: Financial statements for small companies are exempt from including a cash flow statement, simplifying audits and reporting.

3. Fewer Board Meetings: Drop from four to just two board meetings per year, with a minimum 90-day gap between them. Perfect for lean teams juggling operations and strategy.

4. Lighter Penalties and Exemptions: Enjoy reduced fines for non-compliance and exemptions from certain related party transaction approvals. It's a buffer against honest mistakes in a fast-paced business environment.

5. Easier CSR and Other Obligations: While CSR thresholds remain separate, the broader small company net could indirectly ease pressures on sustainability reporting for qualifying firms.

These perks aren't theoretical—they're designed to let small businesses focus on scaling, not shuffling forms. With India's startup ecosystem booming (over 100,000 DPIIT-recognized startups as of 2025), this update aligns perfectly with the government's "Ease of Doing Business" agenda.

Potential Implications and Who Qualifies?

Not every company will slide into this category automatically. To qualify as a small company under the new rules:

• Your paid-up share capital must not exceed ₹10 crore.

• Your turnover (as per the last profit and loss account) must stay under ₹100 crore.

• You're a private company (public companies and certain others like Section 8 entities are excluded).

• No defaults on repayments to small depositors or debts to micro/small enterprises.

If your business just crossed the old thresholds, revisit your status—reclassification could retroactively apply for the current financial year. But beware: fluctuating turnover means you might ping-pong in and out of small company status, so track it quarterly.

For larger firms eyeing demergers or spin-offs, this opens doors to create "small" subsidiaries with lighter compliance loads.

A Word of Caution: It's Not One-Size-Fits-All

While these changes are a boon, they're not a free pass. Small companies still need to adhere to core governance norms, like timely audits and director disclosures. And if you're on the cusp, misclassifying could lead to penalties down the line.

Final Thoughts: Time to Review and Rejoice?

The MCA's bold stroke in redefining small companies is a clear signal: India wants its businesses to thrive, not just survive. If your company's financials fit the new mold, congratulations—you've just gained a compliance edge. I recommend a quick audit of your books and a chat with your CS or CA to confirm eligibility and tweak your filings.

What are your thoughts on this update? Has it impacted your business plans? Drop a comment below or reach out via contact@csjaivindrasingh.com for personalized advice. Let's keep the conversation going—after all, navigating corporate law is best done together.

Jaivindra Singh is a practicing Company Secretary specializing in compliance and advisory for SMEs in India. Follow for more insights on LinkedIn or subscribe to the newsletter at csjaivindrasingh.com.

References: All data drawn from official MCA notifications and analyses as of December 2025.