Small company definition change w.e.f 01st December, 2025 – Companies Act, 2013 – How it benefits us?

Section 2(85) small company:

“small company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than  ten crore rupees five crore rupees; or  and

(ii) turnover of which  as per profit and loss account for the immediately preceding financial year as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees twenty 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;

How it helps us:

The objective behind introducing the small company category was to:

• Reduce the compliance burden on small businesses
• Simplify corporate governance norms for them
• Provide exemptions that would lower costs and administrative work
• Allow these companies to focus on growth and operations rather than regulatory compliances

>> Exemption from Preparing Cash Flow Statement

>> Signing of Annual Returns by CS not required

>> Reduced Requirement for Board Meetings – 1 meeting for half year is sufficient

>> Relaxation in Board Composition

• They can have a minimum of two directors, instead of the usual three required for private companies.
• There is no requirement to appoint independent directors.
• exempt from the requirement of retiring directors by rotation.
• include additional grounds for director disqualification and vacation of office in their articles.

>> Audit and Auditor Rotation Exemptions

Retain the same auditor for an indefinite period if it wishes.

>> No CARO disclosure

Exempt from the detailed reporting requirements under the Companies (Auditor’s Report) Order, 2020 (CARO 2020), further reducing audit-related burdens.

>> Managerial Remuneration

Managerial remuneration payable 11% cap on net profits is not applicable