MCA Redefines Small Companies Under Section 2(85): Revised Thresholds of Rs 10 Crore Capital and Rs 100 Crore Turnover

The Revised Thresholds

The Ministry of Corporate Affairs (MCA), through the Companies (Specification of Definition Details) Amendment Rules, 2025, notified on December 1, 2025, has substantially raised the financial thresholds for classifying a company as a "small company" under Section 2(85) of the Companies Act, 2013. A private company now qualifies as a small company if both conditions are met simultaneously: paid-up share capital does not exceed Rs 10 crore, and turnover as per the last audited profit and loss account does not exceed Rs 100 crore.

How the Definition Has Evolved

The small company definition has been revised three times since the Companies Act, 2013 came into force. The original 2013 thresholds were Rs 50 lakh paid-up capital and Rs 2 crore turnover. These were raised to Rs 2 crore and Rs 20 crore respectively by the Companies (Specification of Definition Details) Rules, 2014, and then to Rs 4 crore and Rs 40 crore through an amendment effective April 1, 2021. The current revision to Rs 10 crore and Rs 100 crore represents a 2.5x increase in the capital threshold and a 2.5x increase in the turnover threshold from the 2021 levels.

In practice, each revision has brought thousands of additional companies into the small company category, progressively reducing the compliance burden on India's private company ecosystem. Industry estimates suggest that the latest revision will reclassify approximately 1.5 to 2 lakh additional companies as small companies, taking the total to over 90% of all active private companies registered with the MCA.

Who Qualifies and Who Does Not

Section 2(85) applies only to private companies (companies limited by shares). The following entities are expressly excluded regardless of their financial size:

Practitioners should note that both conditions must be satisfied simultaneously. A private company with Rs 8 crore paid-up capital but Rs 120 crore turnover would not qualify, because the turnover exceeds Rs 100 crore. The test is applied based on the last audited financial statements, not projected or interim figures. The NCLT in Re: Innovative Ideals and Services (India) Pvt. Ltd. (2017) 138 CLA 142 clarified that the small company classification is determined as of the date of the last audited accounts and can change year to year if financial thresholds are crossed.

Compliance Reliefs for Small Companies

Small company classification unlocks several significant compliance exemptions under the Companies Act, 2013:

Interaction with the Corporate Laws (Amendment) Bill, 2026

The Corporate Laws (Amendment) Bill, 2026, currently before a Joint Parliamentary Committee, proposes to raise the upper limits under Section 2(85) further to Rs 20 crore paid-up capital and Rs 200 crore turnover. If enacted, this would bring virtually all private companies in India (other than large family conglomerates and PE-backed entities) under the small company umbrella.

In practice, the Bill's proposed thresholds would fundamentally change the compliance landscape for mid-sized companies. Companies with turnover between Rs 100 crore and Rs 200 crore currently maintain full compliance infrastructure (four board meetings, cash flow statements, full MGT-7 filings, internal auditors). If reclassified as small, they could dismantle these structures, though prudent governance would suggest retaining them voluntarily.

The Supreme Court in Salomon v. Salomon & Co. [1897] AC 22 established the principle that a company's legal obligations flow from its statutory framework, not its size. Indian courts, including the NCLAT in Innoventive Industries Ltd. v. ICICI Bank (2017) 15 SCC 666, have consistently held that statutory compliance obligations apply regardless of commercial convenience. Companies transitioning to small company status should therefore ensure that the transition is properly documented in board minutes and that the classification is reviewed annually against audited financials.

Sources and References

1. Companies (Specification of Definition Details) Amendment Rules, 2025, MCA Notification dated December 1, 2025

2. Section 2(85), Companies Act, 2013 (Definition of small company)

3. Corporate Laws (Amendment) Bill, 2026 (proposed revised thresholds)

4. Sections 92, 138, 173, 233, and 446B, Companies Act, 2013

5. Re: Innovative Ideals and Services (India) Pvt. Ltd. (2017) 138 CLA 142

This article is for informational purposes only and does not constitute legal advice. For specific legal guidance on small company classification or compliance requirements, consult a qualified legal professional.