Boost for small companies as government doubles paid-up capital limit

Earlier, the paid-up capital limit was increased to Rs 2 crore from Rs 50 lakh while the turnover was increased to Rs 20 crore from Rs Rs 2 crore.

In what could be a booster shot for small companies, the government has doubled the limit of paid-up capital and turnover for them. The decision is likely to reduce the compliance burden for several entities making them eligible to qualify for this tag. Thus, they would be able to enjoy certain benefits as well.

A notification by the Ministry of Corporate Affairs said that the threshold of paid-up capital for small firms has been increased to Rs 4 crore and turnover to Rs 40 crore. "....paid up capital and turnover of the small company shall not exceed rupees four crore and rupees forty crore respectively," said a gazette notification issued by the ministry on September 15.

Earlier, the paid-up capital limit was increased to Rs 2 crore from Rs 50 lakh while the turnover was increased to Rs 20 crore from Rs Rs 2 crore. The decision is part of the various initiatives being taken by the government to promote ease of business and reduce compliance burden.

According to the experts, the new move will allow eligible firms to prepare and file abridged annual returns. This also exempts them from the mandatory rotation of their auditors. Also, the new entrants in the club of small companies now don’t need to prepare cash flow statements as part of their financial statements and will be required to hold only two board meetings per year.

The government said in a statement that due to the reduced compliance burden as a result of the revised definition for small companies, the annual return of the company can now be signed by the company secretary, or where there is no company secretary, by a director of the company. It also paves way for lesser penalties for small companies.

With the decision, any auditor of a small company is no more mandated to report on the operating effectiveness and adequacy of the internal financial controls of the company.

It may be recalled that the Modi government had earlier modified the definition of MSMEs based on investment and turnover. The government had also hiked the annual turnover limit for a medium enterprise to Rs 250 crore from Rs 100 crore.