Government New Rules For “Small Companies”


The government has revised the paid-up capital and turnover thresholds for small companies which will help reduce the compliance burden.

According to the ministry, small companies are exempted from the requirement to prepare cash flow statements as part of financial statements and can file an abridged annual return.

The latest decision by the corporate affairs ministry, which is implementing the companies law, has again revised the definition of small companies and is aimed at further improving the ease of doing business. With the amendments to certain rules, the threshold for small companies’ paid-up capital has been increased to “not exceeding Rs 4 crore” from “not exceeding Rs 2 crore”. Similarly, the turnover threshold has been revised to “not exceeding Rs 40 crore” from “not exceeding Rs 20 crore”, the ministry said in a release on Friday.

The release says, An auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report, and such companies need to hold only two board meetings in a year. Other advantages are that there are lesser penalties for small companies and annual returns of such entities can be signed by the company secretary, or where there is no company secretary.

Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner.

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

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