Government raises minimum paid-up capital requirement for small companies

The Ministry of Corporate Affairs has significantly changed the threshold limit for “small enterprises” paid-up capital yet again.

Prior to this change, the Firms Act of 2013’s definition of “small companies” had its paid-up capital and turnover criteria raised from “not surpassing Rs 50 lakh” to “not exceeding Rs 20 crore” to “not exceeding Rs 2 crore,” respectively. The thresholds for paid up capital have now been raised from “not exceeding Rs. 2 crores” to “not exceeding Rs. 4 crores,” and the threshold for turnover has been changed from “not exceeding Rs. 20 crores” to “not exceeding Rs. 40 crores.”

The government has recently taken significant steps to make it easier for corporations to do business and live comfortably.

These include expanding fast-track mergers to start-ups, encouraging the incorporation of One-Person Companies (OPCs), decriminalising some aspects of the 2013 Companies Act and the 2008 LLP Act, etc.

Small businesses provide a major contribution to growth and employment and represent the innovative spirit and aspirations of thousands of people.

“The Government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including a reduction of the compliance burden on such companies,” said the ministry.

The following are some advantages of the reduced compliance load brought on by the updated definition for small businesses:

It is not necessary to prepare a cash flow statement as part of the financial statement.

It is advantageous to prepare and file an abridged annual return.

It is not necessary for the auditor of a small company to report on the sufficiency of internal financial controls and their operational effectiveness in the auditor’s report.

It is only necessary for the board to meet twice a year.