Corporate Laws Amendment Bill 2026: Small Company Definition and Threshold Changes

The Corporate Laws Amendment Bill, 2026, referred to a Joint Parliamentary Committee in March 2026, significantly raises the thresholds defining small companies under the Companies Act, 2013. The paid-up share capital limit increases from Rs 50 lakh to Rs 20 crore, and turnover limit rises from Rs 2 crore to Rs 200 crore. These changes reduce regulatory burden on a broad category of companies and reshape corporate governance obligations.

New Small Company Thresholds and Impact

Under current law, a company is a small company if its paid-up share capital does not exceed Rs 50 lakh and turnover does not exceed Rs 2 crore in the preceding financial year. The Amendment Bill raises both thresholds dramatically. The new paid-up capital limit of Rs 20 crore represents a 40-fold increase, and the new turnover limit of Rs 200 crore represents a 100-fold increase. A company must satisfy both conditions to be classified as small; if either limit is exceeded, the company loses small company status. These thresholds are intended to provide regulatory relief to a broader category of growing enterprises. The change recognizes that the old thresholds captured only the smallest businesses and left many small to medium enterprises subject to stringent compliance obligations intended for larger corporations. The increase will allow hundreds of thousands of Indian companies to transition into the small company regime and enjoy reduced compliance requirements.

Compliance Advantages of Small Company Status

Small companies benefit from several compliance simplifications. They are not required to form a CSR committee or spend the mandatory 2% of net profits on corporate social responsibility activities (subject to the separate increase in CSR threshold from Rs 5 crore to Rs 10 crore in net profit). They may have a simplified board structure with fewer independent directors in some cases. Small companies are exempt from provisions requiring rotation of independent directors and have reduced disclosure requirements in financial statements. Audit exemption is available for small companies with turnover below Rs 50 lakh (a threshold unchanged in the Bill). Annual filings and related compliance processes are streamlined for small companies. The internal audit requirement is reduced. These simplifications collectively save time and cost, allowing small companies to focus resources on business growth rather than regulatory machinery. The Bill is expected to benefit approximately 1.5 million Indian companies that will become newly eligible for small company relief.

Corporate Social Responsibility Threshold Changes

Separately from the small company definition, the Bill increases the CSR applicability threshold from net profit of Rs 5 crore to Rs 10 crore. This decouples CSR obligations from small company classification; a company can be a small company but still have CSR obligations if its net profit exceeds Rs 10 crore. Conversely, a large company with net profit below Rs 10 crore would not have CSR obligations. This change reduces the burden on many mid-sized companies and recognizes that CSR compliance imposes real administrative costs that may be disproportionate for some businesses below the new threshold. The CSR requirement obligates companies above the threshold to spend 2% of their average net profit of the preceding three financial years toward social development activities. The increased threshold is expected to exempt approximately 15,000 companies from CSR obligations.

Practical Takeaways

Companies with paid-up capital between Rs 50 lakh and Rs 20 crore, or turnover between Rs 2 crore and Rs 200 crore, should review whether they may become eligible for small company relief after the Bill is enacted. Many companies will gain eligibility even without changes in business size, simply due to the threshold revision. Organizations that become small companies will need to update internal governance practices to reflect reduced compliance burden but should ensure they continue managing business risks appropriately despite regulatory relief. Finance teams should assess the impact on CSR obligations; companies with net profit above Rs 10 crore will remain subject to CSR spending requirements regardless of small company status. Document your company's classification under current law and prepare transition plans for any changes that will occur when the Bill is enacted. The Bill is still with the Joint Parliamentary Committee, so final text may differ from introduced provisions; monitor parliamentary progress and final enactment. Once enacted, review your company's entire governance framework and revise policies to align with the new regulatory regime.