Govt eases 'small company' rules, more firms to benefit

The government has relaxed the definition of small companies, enabling a larger number of entities to take advantage of reduced compliance requirements and a fast-track merger process.

In a notification, the corporate affairs ministry said companies with paid-up capital and annual turnover up to ₹10 crore and ₹100 crore, respectively, will now be classified as small companies.

Earlier, those with paid-up capital up to ₹4 crore and turnover up to ₹40 crore were tagged as small companies. These rules will be called the Companies (Specification of definition details) Amendment Rules, 2025, the ministry said in the notification dated December 1. The new rules take effect immediately, it added. The move is part of the broader government efforts to ensure greater ease of doing business, experts said. "This will not only ease the cost of doing business (for such entities) but also free up managerial and financial resources that can be redirected towards growth and innovation," said Sandeep Jhunjhunwala, partner at Nangia Group. However, businesses need to keep in mind the fact that the Companies Act excludes holding and subsidiary companies from falling under the small company category, even if they meet the prescribed paid-up capital and turnover thresholds, Jhunjhunwala added.


This restriction ensures that the small company framework remains focused on easing compliance for independent businesses and standalone enterprises, rather than entities operating within larger corporate ecosystems, he said.

Benefits to small companies

As per rules, small companies are exempted from preparing a cash flow statement and are required to file the board report in a simplified format. They pay lower fees for filing annual returns and other forms and are subject to lower penalties for non-compliance with rules.

The mergers between small companies are less cumbersome and done on a fast-track basis.

These companies are mandated to hold only two board meetings in a financial year, with a minimum gap of 90 days.