Centre revises definition of small companies; more firms to have reduced compliance burden

By Team Newsable | First Published Sep 16, 2022, 10:19 AM IST

Small companies are exempted from the requirement to prepare cash flow statements as part of a financial statement and can file an abridged annual return. They will not be required to have the mandatory rotation of auditors.

The central government has revised the paid-up capital and turnover thresholds for small companies that will help reduce the compliance burden on more entities. This decision by the centre has again revised the definition of small companies and is aimed at further improving the ease of doing business.

With the amendments to certain rules, the threshold for small companies' paid-up capital has been increased to "not exceeding Rs 4 crore" from "not exceeding Rs 2 crore".

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Similarly, the turnover threshold has been revised to "not exceeding Rs 40 crore" from "not exceeding Rs 20 crore", the ministry said in a release on Friday. The revisions will allow more entities to come under the category of small companies.

According to the ministry, small companies are exempted from the requirement to prepare cash flow statements as part of a financial statement and can file an abridged annual return. They will not be required to have the mandatory rotation of auditors.

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"An auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor's report, and such companies need to hold only two board meetings in a year," the release said.

Other advantages are that there are lesser penalties for small companies and annual returns of such entities can be signed by the company secretary, or where there is no company secretary, by a director of the company.

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"The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies," the release said.

In recent times, the government has taken various measures, including decriminalisation of various provisions under the companies law, to further improve the ease of doing business in the country.

(With inputs from PTI)

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