Ease of doing business: 'small business' limits further relaxed

Ease of doing business: ‘small business’ limits further relaxed

The government has doubled the paid-up capital and turnover eligibility thresholds for small businesses, which will help more companies and start-ups gain access to the less stringent compliance regime for such entities under the Companies Act 2013 .

According to a notification from the Ministry of Corporate Affairs (MCA), any company with a paid-up capital of up to Rs 4 million and a turnover of up to Rs 40 million would be considered a small company.

This is the second revision in just 18 months: the limit was raised to Rs 2 crore and Rs 20 crore, respectively, on April 1. one year instead of at least four for others, and they don’t have to rotate auditors every five years. They can file abbreviated annual returns and these can be signed by the company secretary or a company director. Most small business legal documents do not need to be signed by a practicing professional, such as a CPA.

Experts said the previous increase in 2021 did not benefit many companies as the thresholds were too low, especially the paid-in capital criteria.

On top of that, in the post-Covid rush, a number of small startups received funding from private equity and other investors, increasing their paid-up capital even though their business was still small, pushing them out of the small business category.

Clement Compliance Regime

The doubled cap should allow a much larger number of businesses to be considered small businesses for light-touch compliance.

“The government’s idea seems to increase the pool of small businesses by 10-20% and the higher thresholds will allow a number of startups to take advantage of the lenient regime,” said Sanket Jain, a partner at Pioneer Legal.

The measures are part of the Center’s efforts to ease the compliance regime for businesses. Last year, the government decriminalized several breaches of the Companies Act, thus providing a more lenient regime.

“There are various exemptions for small businesses under the Companies Act, most importantly minor penalties for non-compliance,” said Gaurav Pingle, Acting Company Secretary.

“Due to increased monetary limits for defining a small business, the practicing professional pre-certification requirement for certain forms will be reduced for such businesses. Instead, a self-certification would suffice.”

The move is intended to help create a better business environment.

“Small businesses represent the entrepreneurial aspirations and innovation capabilities of thousands of citizens and contribute to growth and employment in significant ways,” the MCA said in a press release. “The government has always been committed to taking steps that create a more conducive business environment for law-abiding businesses, including reducing the compliance burden on such businesses.”

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