Major Relief for MSMEs: Revised Definition of “Small Company” Under Section 2(85) of the Companies Act, 2013
In a significant move to strengthen MSME compliance relief in India, the Ministry of Corporate Affairs (MCA) has revised the definition of “Small Company” under Section 2(85) of the Companies Act, 2013.
This amendment expands the scope of businesses eligible for reduced compliance requirements, simplified financial reporting, and lower penalties — offering major relief to startups, MSMEs, and growing private limited companies in India.
What Has Changed in the Small Company Definition?
Under the revised MCA notification, the eligibility thresholds for classification as a Small Company have been significantly enhanced:
- Paid-up Share Capital: Increased up to ₹10 crore
- Turnover: Increased up to ₹100 crore
Earlier, companies exceeding much lower financial limits would lose small company status and face stricter compliance obligations. With this revision, a substantially larger number of private limited companies can now benefit from relaxed regulatory norms.
This reform directly supports ease of doing business in India and reduces the regulatory burden on MSMEs.
Legal Background – Section 2(85) of the Companies Act, 2013
Section 2(85) of the Companies Act, 2013 defines a Small Company as a company, other than a public company, whose:
- Paid-up share capital does not exceed the prescribed limit
- Turnover as per its last profit and loss account does not exceed the prescribed limit
The following companies are excluded:
- Holding or subsidiary companies
- Section 8 companies
- Companies governed by special Acts
Key Benefits of Small Company Status
- Reduced Board Meeting Requirements – Only two Board Meetings per year.
- No Mandatory Cash Flow Statement – Small Companies are exempt.
- Simplified Annual Return (Form MGT-7A) – Reduced disclosures.
- Lower Penalties under Section 446B – Reduced penalties for non-compliance.
- Relaxed Auditor Rotation Requirements
Impact on MSMEs, Startups & Growing Businesses
The revised limits will enable more companies to retain Small Company status, reduce compliance burden and professional costs, and allow founders to focus on business expansion instead of regulatory procedures.
Practical Example
If a private limited company has:
- Paid-up capital of ₹9 crore
- Annual turnover of ₹75 crore
It will qualify as a Small Company under Section 2(85) and can avail compliance relaxations under the Companies Act, 2013.
Professional Insight: Compliance Planning Strategy
From a corporate governance and compliance advisory perspective, this amendment balances regulatory oversight with business facilitation.
Companies must carefully monitor:
- Paid-up capital increases
- Annual turnover thresholds
- Structural changes (holding/subsidiary status)
Crossing the prescribed limits may change compliance obligations from the subsequent financial year.
Strategic compliance planning is essential to maximize Small Company benefits.
Conclusion
The revised definition of “Small Company” under Section 2(85) of the Companies Act, 2013 marks a progressive reform in India’s corporate compliance landscape.
By increasing the paid-up capital limit to ₹10 crore and turnover limit to ₹100 crore, the Government has extended meaningful compliance relief to a broader segment of Indian MSMEs and private limited companies.
Businesses should proactively review their financials to determine eligibility under the revised Small Company definition 2025 and align their compliance strategy accordingly.
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