Revised Small Company Thresholds and Their Implications

Recently, the Ministry of Corporate Affairs, vide notification dated 1^st December 2025 (“Amendment”), has increased the financial thresholds for classifying companies as “Small Companies” under Section 2(85) of the Companies Act, 2013 (“Act”). 

This is not the first time the “Small Company” thresholds have been revised. Below is a comparison of the previous and new limits: 

Start-ups and growth-stage Small and Medium-sized Enterprises stand to gain significantly from the Amendment, as the expanded thresholds allow them to enjoy simplified compliance during periods of rapid expansion. Similarly, family-run and closely held companies benefit from reduced administrative overhead and greater governance flexibility, while Micro, Small and Medium Enterprises and credit-dependent businesses can leverage improved compliance standards to enhance lender confidence and investor trust. 

Key Compliance Relaxations for Small Companies  

The Amendment significantly reduces the compliance burden for companies classified as “Small Company.” These entities can now avail of certain relaxations which include the following: 

• Reduced Board Meetings: Small Companies are required to hold only two board meetings in a financial year, with a minimum gap of 90 days between meetings. 

• Simplified Financial Statements: Preparation of a cash flow statement as part of the financial statements is no longer mandatory.  

• No Auditor Rotation: Auditor rotation requirements have been relaxed, allowing continuity with the same auditor. 

• Simplified Annual Returns and Abridged Director’s Report: Filing is now permitted as per Form MGT-7A instead of the comprehensive Form MGT-7 and the Director’s Report may now be presented in an abridged format with fewer disclosures. 

• Lower Penalties: Penalties for non-compliance have been reduced to 50% of the standard amount, subject to a cap of INR 2 lakh for the company and INR 1 lakh for officers in default. 

• No Mandatory Dematerialization of Shares: There is no requirement for mandatory dematerialization of shares; physical shareholding is permitted. 

• Fast-Track Mergers: Small Companies are eligible for the fast-track merger process under Section 233 of the Act without the need for NCLT approval. 

Enforcement Date and Prospective Application 

The Amendment stipulates that its provisions shall come into effect from the date of publication in the Official Gazette, i.e., 1 December 2025. Therefore, the revised thresholds for classification as a “Small Company” shall apply prospectively and only in respect of financial years ending on or after 1 December 2025. There is no retrospective application of the amended criteria to prior periods. Consequently, statutory filings already completed for the financial year 2024–25 under the erstwhile thresholds shall remain unaffected. Likewise, the benefit of reduced penalties and compliance relaxations introduced by the Amendment cannot be invoked in relation to defaults or obligations pertaining to any period prior to its commencement. 

Categories Excluded from Small Company Exemptions: 

The following category of companies will not qualify for exemptions of a Small Company even if they meet with the financial thresholds:  

Conclusion 

Pursuant to the Amendment, the determination of a company’s classification as a “Small Company” shall be undertaken on an annual basis, having regard to the financial parameters of the immediately preceding financial year. Consequently, a company is required to satisfy the prescribed thresholds for each relevant financial year in order to maintain such classification. In the event that a company does not meet the criteria in any given year, it shall cease to be regarded as a Small Company for that year; however, it may regain such status in any subsequent year upon fulfillment of the stipulated thresholds. This Amendment reflects the Government’s commitment to promoting “Ease of Doing Business,” thereby encouraging greater incorporations and business formalisation without imposing onerous compliance burdens. 

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause. 

1. Link to 2021 amendment ↩︎
2. Link to 2022 amendment ↩︎