Merger & Acquisition rules for small cos may be relaxed to ease compliance

New Delhi: The ministries of micro, small and medium enterprises (MSME) and corporate affairs are weighing proposals to relax merger and acquisition (M&A) rules for smaller enterprises to push them to gain scale and reduce their compliance burden, officials said.

The plans track the latest Economic Survey rooting for massive deregulations, and for enabling small businesses to build scale and handle large orders.

The MSME ministry wants suitable amendments to rules around corporate bonds under the Companies Act to improve fund flow to MSMEs and narrow the credit gap in the sector, estimated at ₹20-25 lakh crore, one of the officials told ET.

The two ministries are also discussing ways for simpler filing of annual returns, reducing frequency of audits and trimming governance requirements for MSMEs. The MSME ministry is pushing for abolishing filing fees for such entities, and waiver of statutory audit requirements for micro units. Once finalised, the changes would be part of proposed amendments to the Companies Act, the officials said.

MSMEs are a crucial part of the Indian economy, contributing about 46% to exports and 30% to gross domestic product. As of November 26, 2024, MSMEs employed a total of 232.4 million people.

"Currently, listed and unlisted companies have similar scrutiny levels under the Companies Act. The compliance requirement for unlisted companies should be reduced," said Anil Bhardwaj, secretary general, Federation of Micro and Small & Medium Enterprises.

MSME definition alignment

The MSME ministry is also seeking an alignment of the definition of micro, small and medium enterprises under the companies law with the one under the MSME Development Act. Such a move would allow such entities to register themselves with the Udyam portal to take advantage of government benefits, driving greater formalisation of the economy.

Ankit Singhi, head-corporate affairs & compliance at consultancy firm Corporate Professionals, said the Companies Act currently defines only small companies, and there is no specific MSME definition in it.

The recent budget announced doubling the annual turnover limits of micro, small and medium enterprises set under the MSME Development Act to ₹10 crore, ₹100 crore and₹500 crore, respectively, to enable a larger number of companies to obtain official benefits meant for such enterprises. An official notification on the decision is awaited.

The MSME ministry has also suggested that misconduct by independent directors of MSMEs be decriminalised to encourage a larger number of smaller entities to appoint them. However, this proposal is being carefully examined by the corporate affairs ministry, given the scope for manipulations, said another person.

To ease the compliance burden for small enterprises, "these companies should be exempt from holding frequent board meetings and allow critical decisions to be taken via written resolutions," said Rishi Agrawal, chief executive at compliance management software firm Teamlease Regtech.