Small Company Limits Proposed at ₹20 Cr Paid-up Capital & ₹200 Cr Turnover
Summary:Clause 18 of theCorporate Laws (Amendment) Bill, 2026proposes to amend Section 2(85) of the Companies Act, 2013 by increasing the maximum prescribed paid-up share capital threshold for a “small. . .
Summary:Clause 18 of theCorporate Laws (Amendment) Bill, 2026proposes to amend Section 2(85) of the Companies Act, 2013 by increasing the maximum prescribed paid-up share capital threshold for a “small company” from ₹10 crore to ₹20 crore and the turnover threshold from ₹100 crore to ₹200 crore. The proposed amendment follows the MCA’s 1 December 2025 amendment increasing the limits to ₹10 crore and ₹100 crore. If enacted, more private companies may qualify as small companies and become eligible for applicable compliance relaxations, including simplified annual return and Board’s Report requirements, exemption from preparation of a cash-flow statement where applicable, reduced compliance and reporting requirements, the reduced penalty regime under Section 446B where applicable, and other specified relaxations. The exclusions under Section 2(85) would continue to apply to holding companies, subsidiary companies, Section 8 companies, and companies or bodies corporate governed by a special Act, irrespective of their financial thresholds. The proposed limits represent a progression from ₹4 crore/₹40 crore to ₹10 crore/₹100 crore and then ₹20 crore/₹200 crore. Proposed Amendment to the Definition of Small Company under the Companies Act, 2013The proposed amendment inClause 18 of theCorporate Laws (Amendment) Bill, 2026seeks to revise the financial thresholds prescribed underSection 2(85) of theCompanies Act, 2013, which defines a“Small Company. ”Existing Small Company Definition under Section 2(85) of Companies Act, 2013Current Small Company Limits under Companies Act, 2013Proposed Small Company Limits under Corporate Laws (Amendment) Bill, 2026Impact of Proposed Increase in Small Company LimitsHolding and Subsidiary Companies Excluded from Small Company DefinitionExample: Subsidiary Company Not Eligible as Small CompanyExample: Holding Company Not Eligible as Small CompanyEarlier Revised Small Company Definition under Companies Act, 2013Evolution of Small Company Limits under Companies Act, 20132025 Amendment Increased Small Company Limits to ₹10 Crore and ₹100 Crore2026 Proposal Further Expands the Small Company RegimeEntities Excluded from Small Company DefinitionPractical Significance of Proposed Small Company LimitsPolicy Objectives of Proposed Small Company AmendmentConclusion: Proposed Small Company Limits of ₹20 Crore and ₹200 CroreExisting Small Company Definition under Section 2(85) of Companies Act, 2013Section 2(85)of the Companies Act, 2013 defines a“small company”as a company, other than a public company, —(i) paid-up share capitalof which does not exceed fifty lakh rupees or such higher amount as may be prescribed,which shall not be more than ten crore rupees; and(ii) turnoverof which, as per the profit and loss account for the immediately preceding financial year, does not exceed two crore rupees or such higher amount as may be prescribed,which shall not be more than one hundred crore rupees. Provided that nothing in this clause shall apply to—(A) a holding company or a subsidiary company;(B) a company registered under Section 8; or(C) a company or body corporate governed by any special Act. Current Small Company Limits under Companies Act, 2013Present Prescribed LimitsRule 2(1)(t) of theCompanies (Specification of Definitions Details) Rules, 2014provides that for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of Section 2 of the Act,the paid-up share capital and turnover of a small company shall not exceed rupees ten crore and rupees one hundred crore respectively. Accordingly, at present, a company shall be treated as a small company if:its paid-up share capital does not exceed ₹10 crore; andits turnover does not exceed ₹100 crore,subject to the exclusions provided under Section 2(85) of the Companies Act, 2013. Accordingly, at present, a private company can qualify as a small company if both financial conditions are satisfied, subject to the statutory exclusions under Section 2(85). Proposed Small Company Limits under Corporate Laws (Amendment) Bill, 2026Proposed Amendment under Corporate Laws (Amendment) Bill, 2026Clause 18of the Corporate Laws (Amendment) Bill, 2026 proposes to amend Section 2(85) by increasing the financial limits as follows:The maximumpaid-up share capitalthreshold is proposed to be increased from₹10 crore to ₹20 crore. The maximumturnoverthreshold is proposed to be increased from₹100 crore to ₹200 crore. Impact of Proposed Increase in Small Company LimitsImpact of the Proposed AmendmentIf enacted, the proposed amendment would bring a much larger number of private companies within the definition of“small company”. Such companies may become eligible for various compliance relaxations available under the Companies Act, 2013, depending upon the specific provision and applicable rules. These include, among others:simplified annual return requirements;exemption from preparation of a cash-flow statement in the financial statements, where applicable;reduced compliance and reporting requirements;simplified Board’s Report requirements;benefit of the reduced penalty regime under Section 446B, where applicable;relaxation from mandatory auditor rotation in cases where the relevant provisions apply; andother procedural and regulatory relaxations available specifically to small companies. However,classification as a small company does not mean that the company is exempt from all statutory compliances. The company must continue to comply with all provisions that remain applicable to it. Holding and Subsidiary Companies Excluded from Small Company DefinitionImportant Point: Holding and Subsidiary Companies Remain ExcludedThe increase in the financial thresholds doesnotremove the statutory exclusions contained in the proviso to Section 2(85). Therefore, aholding company or subsidiary company cannot become a “small company” merely because its paid-up capital and turnover fall within the prescribed financial limits. Example: Subsidiary Company Not Eligible as Small CompanyExample:Suppose ABC Private Limited is a subsidiary company of XYZ Limited. ABC Private Limited has—paid-up share capital of ₹1 crore; andturnover of ₹5 crore. Although the company is within the prescribed limits of ₹10 crore paid-up capital and ₹100 crore turnover, it will still not qualify as a “small company” because it is a subsidiary company. Example: Holding Company Not Eligible as Small CompanySimilarly, if PQR Private Limited is a holding company having paid-up share capital of ₹2 crore and turnover of ₹8 crore, it will also not be treated as a small company due to the specific exclusion under Section 2(85) of the Companies Act, 2013. The same principle applies to Section 8 companies and companies or bodies corporate governed by a special Act. Earlier Revised Small Company Definition under Companies Act, 2013Earlier revised definition of a “Small Company”The definition of a“Small Company”under Section 2(85) of the Companies Act, 2013 has been revised by increasing the prescribed thresholds of paid-up share capital and turnover. MCA vide Notification dated 01. 12. 2025, namely the Companies (Specification of Definitions Details) Amendment Rules, 2025, has amendedRule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014. Pursuant to the amendment,Rule 2(1)(t)now provides that for the purposes ofsub-clause (i) and sub-clause (ii) of clause (85) of Section 2of the Companies Act, 2013, the paid-up share capital and turnover of a small company shall not exceedrupees ten croreandrupees one hundred crorerespectively. Evolution of Small Company Limits under Companies Act, 2013The evolution of the thresholds may be summarised as follows:Period / AmendmentPaid-up Share CapitalTurnoverOriginal provision₹50 lakh₹2 crore2021 amendment₹2 crore₹20 crore2022 amendment₹4 crore₹40 croreMCA Rules, 2025₹10 crore₹100 croreProposed Bill, 2026₹20 crore₹200 crore2025 Amendment Increased Small Company Limits to ₹10 Crore and ₹100 CroreThe 2025 amendment is particularly significant because it had already increased the prescribed limits from ₹4 crore/₹40 crore to ₹10 crore/₹100 crore with effect from 1 December 2025. 2026 Proposal Further Expands the Small Company RegimeThe 2026 proposal therefore represents a further substantial expansion of the category. Accordingly, a greater number of private companies will now qualify as“small companies”and become eligible for various compliance relaxations and lesser regulatory requirements available under the Companies Act, 2013. Entities Excluded from Small Company DefinitionHowever, it is pertinent to note that the following entities shall continue to remain excluded from the definition of a small company irrespective of their paid-up capital or turnover:holding companies;subsidiary companies;companies registered under Section 8; andcompanies or bodies corporate governed by any special Act. Practical Significance of Proposed Small Company LimitsPractical SignificanceThe proposed amendment is important because the concept of a “small company” is gradually moving away from being restricted to very small private companies. The proposed ₹20 crore paid-up capital and ₹200 crore turnover thresholds would allow substantially larger private companies to obtain the regulatory benefits associated with small-company status. Policy Objectives of Proposed Small Company AmendmentThe policy objective appears to be to:reduce the cost of corporate compliance;facilitate ease of doing business;reduce disproportionate regulatory burdens on growing enterprises;encourage entrepreneurship and expansion; andallow growing private companies to remain within a simplified compliance framework for a longer period. Conclusion: Proposed Small Company Limits of ₹20 Crore and ₹200 CroreThe proposed amendment under Clause 18 of the Corporate Laws (Amendment) Bill, 2026 is therefore amajor proposed expansion of the “Small Company” regime. The progression can be understood simply as:₹4 crore / ₹40 crore → ₹10 crore / ₹100 crore → proposed ₹20 crore / ₹200 croreHowever, the financial thresholds are only one part of the definition. Holding companies, subsidiary companies, Section 8 companies and companies/body corporates governed by a special Act continue to remain excluded, irrespective of their paid-up share capital or turnover. Accordingly, if the proposed amendment is enacted, a private company having paid-up capital up to₹20 croreand turnover up to₹200 croremay qualify as a small company,provided it satisfies all other conditions of Section 2(85) and does not fall within any of the specified exclusions. *****Disclaimer:Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.