Small Company Definition 2026: Higher Thresholds After the December 2025 Amendment and What Compliance Changes for Your Business

If your private limited company's paid-up capital is under Rs 10 crore and turnover is under Rs 100 crore, you may have just moved from the 'regular company' compliance bracket to the significantly lighter 'small company' bracket - without doing anything. The December 2025 amendment more than doubled both thresholds, and the Corporate Laws (Amendment) Bill, 2026 proposes raising the statutory cap even further.

This guide explains the current small company definition effective from 01 December 2025, the practical compliance changes it triggers, what the 2026 Bill proposes for the future, and how to handle the transition if your company has just entered or is about to exit the small company bracket.

What Is a Small Company Under Section 2(85) and Why Do the 2026 Thresholds Matter?

A small company under Section 2(85) of the Companies Act, 2013 is a private company (not a public company) whose paid-up share capital does not exceed the prescribed limit and whose turnover as per the preceding financial year's profit and loss account does not exceed the prescribed limit. Both conditions must be met simultaneously.

Following the December 2025 amendment via G.S.R. 880(E), the thresholds are now Rs 10 crore paid-up capital and Rs 100 crore turnover - a massive increase from the Rs 4 crore / Rs 40 crore limits that applied since September 2022. This means a significantly larger pool of private companies now qualify for reduced compliance, including many mid-sized businesses that were previously in the regular compliance bracket.

Companies that completed private limited company registration should evaluate whether they now qualify under the revised thresholds, as the compliance savings - fewer board meetings, simplified filings, and halved penalties - are substantial.

Key Terms You Should Know

• Section 2(85): The provision of the Companies Act, 2013 that defines 'small company'. The definition is a two-limb test: paid-up capital AND turnover must both be within the prescribed limits.
• Rule 2(1)(t): The rule under Companies (Specification of Definitions Details) Rules, 2014 that prescribes the actual monetary thresholds. Amended by G.S.R. 880(E) on 01 December 2025 to Rs 10 crore / Rs 100 crore.
• G.S.R. 880(E): The Official Gazette notification dated 01 December 2025 that raised the small company thresholds. Effective immediately upon publication.
• Corporate Laws (Amendment) Bill, 2026: A Bill introduced in Parliament proposing to raise the statutory upper cap for small company thresholds to Rs 20 crore capital / Rs 200 crore turnover, among other reforms.
• Section 446B: Provides that penalties for small companies, OPCs, and startups are capped at 50% of the normal penalty, subject to a maximum of Rs 2 lakh for the company and Rs 1 lakh for each officer in default.
• Form MGT-7A: The simplified annual return form that small companies file instead of the full Form MGT-7. Requires fewer disclosures and can be signed by a single director if no Company Secretary is appointed.
• CARO 2020: Companies (Auditor's Report) Order, 2020 - not applicable to small companies, exempting them from detailed auditor reporting clauses.

Who Qualifies as a Small Company Under the Current Thresholds?

To qualify as a small company from FY 2025-26 onwards, a private company must meet BOTH of the following conditions based on the immediately preceding financial year's figures:

• Paid-up share capital does not exceed Rs 10 crore
• Turnover as per the profit and loss account for the preceding FY does not exceed Rs 100 crore

Companies managing private limited company compliance should reassess their status every year, as crossing either threshold in any FY means losing small company status for the following year.

Companies excluded from small company classification (regardless of thresholds):

• Public companies - irrespective of capital or turnover
• Holding companies - even if the parent meets the thresholds
• Subsidiary companies - including wholly-owned subsidiaries of private companies
• Section 8 companies (non-profit) - specifically excluded under the proviso to Section 2(85)
• Companies governed by any special Act - such as NBFC, insurance, or banking companies

How Small Company Thresholds Have Evolved: 2013 to 2026

The small company definition has been revised four times since 2013, each time significantly expanding the eligibility pool:

Note: The Corporate Laws (Amendment) Bill, 2026 proposes raising the statutory upper limit in the Act itself to Rs 20 crore capital / Rs 200 crore turnover. Once passed, this will enable the government to further increase thresholds through rules without amending the Act again. The Bill also proposes increasing the CSR net profit threshold from Rs 5 crore to Rs 10 crore and allowing virtual AGMs with physical meetings every 3 years.

What Compliance Changes When Your Company Qualifies as Small: Step-by-Step

1. Board meetings reduce from 4 to 2 per year. Under Section 173(5), small companies need only 2 board meetings per calendar year - one in each half, with a minimum gap of 90 days. This replaces the 4-meeting/120-day-gap requirement for regular companies. Fewer meetings mean fewer agendas, fewer minutes, and less administrative overhead.
2. Cash flow statement is no longer required. Small companies are exempt from preparing a cash flow statement as part of their financial statements under Section 2(40). This removes a reporting obligation that typically requires professional assistance to prepare correctly. The balance sheet and profit and loss account remain mandatory.
3. File MGT-7A instead of MGT-7. Small companies file the simplified Form MGT-7A instead of the full MGT-7. If no Company Secretary is appointed, a single director can sign the return. This reduces both the complexity and cost of annual return filing.
4. CARO reporting does not apply. The Companies (Auditor's Report) Order, 2020 is not applicable to small companies. This simplifies the statutory audit scope and often reduces audit fees. However, the statutory audit itself remains mandatory - engage statutory audit services to ensure correct classification and appropriate reporting.
5. No mandatory auditor rotation. Under Section 139(2), the requirement to rotate auditors every 5 years (individual) or 10 years (firm) does not apply to small companies. This allows continuity with the same auditor, reducing transition costs.
6. Penalties capped at 50%. Under Section 446B, any penalty imposed on a small company is capped at half the normal amount, subject to a maximum of Rs 2 lakh for the company and Rs 1 lakh for each officer in default. This applies to penalties under Sections 92, 117, 137, and most other provisions.
7. Abridged director's report applies. Under Rule 8A of the Companies (Accounts) Rules, small companies can prepare an abridged director's report that omits several clauses required in the full report, reducing the documentation burden.

Documents and Records for Small Company Annual Compliance

• Audited balance sheet and profit and loss account (no cash flow statement required)
• Abridged director's report under Rule 8A of Companies (Accounts) Rules
• Form AOC-4 with financial statement attachments on MCA V3 portal
• Form MGT-7A (simplified annual return) - can be signed by a single director
• Form ADT-1 for auditor appointment or reappointment (no rotation required)
• DIR-3 KYC for each director by 30 September
• Minutes book for 2 board meetings per year with attendance records
• Register of members, register of directors maintained at registered office
• Income tax return (ITR-6) by the applicable deadline
• DSC of the signing director - valid at time of filing

Small Company vs Regular Private Company: Compliance Comparison

The following table shows exactly what changes when a private company qualifies as a small company:

Common Mistakes When Claiming Small Company Status

Mistake 1: Assuming small company status is permanent. Status is assessed every financial year based on the preceding year's figures. A company that qualifies in FY 2025-26 may lose status in FY 2026-27 if either paid-up capital or turnover crosses the threshold. Companies must reassess annually and adjust their compliance calendar accordingly.

Mistake 2: Including reserves in the paid-up capital calculation. The threshold applies only to paid-up share capital - not to reserves and surplus, securities premium, or accumulated profits. Many companies incorrectly add these to the capital figure, disqualifying themselves unnecessarily.

Mistake 3: Filing MGT-7A when the company is a holding or subsidiary. Holding and subsidiary companies are excluded from the small company definition regardless of their capital and turnover. Filing MGT-7A instead of MGT-7 will result in rejection. Companies managing appointment of auditor should verify the company's classification before finalising the audit scope.

Mistake 4: Not updating compliance processes when newly qualifying. Companies that have just moved into the small company bracket under the December 2025 thresholds should formally update their compliance calendar - switching from 4 to 2 board meetings, dropping cash flow preparation, and moving to MGT-7A. Simply qualifying does not automatically change the filing process; the company must actively implement the relaxations.

Penalties and the Section 446B Advantage for Small Companies

The penalty framework for small companies is materially lighter than for regular companies.

Under Section 446B, if a penalty is payable by a small company (or OPC or startup) for non-compliance with any provision of the Companies Act, the penalty is capped at 50% of the normal amount. Additionally, the maximum penalty is Rs 2 lakh for the company and Rs 1 lakh for each officer in default. This applies to penalties under Sections 92, 117, 137, and most other provisions.

For example, if a regular company faces a penalty of Rs 5 lakh for late filing of AOC-4, a small company would pay a maximum of Rs 2 lakh for the same default. Similarly, if a director faces Rs 2 lakh penalty, the cap for a small company director is Rs 1 lakh.

The Rs 100/day additional fee for late filing of AOC-4 and MGT-7A still applies, but the adjudication penalties under Section 454 are subject to the Section 446B cap. This can result in savings of lakhs of rupees for companies that inadvertently miss deadlines.

How Small Company Status Connects with Other Compliance Provisions

Small company status has a cascading effect across multiple compliance areas. The classification determines whether the auditor must include CARO reporting and IFC commentary in the audit report - both of which are exempt for small companies. This directly impacts audit fees, audit timelines, and the complexity of the statutory audit process. For a detailed overview of the criteria and benefits, see our guide on detailed small company criteria and benefits.

The Corporate Laws (Amendment) Bill, 2026 introduces several proposals that, if passed, will further reshape the small company landscape. By raising the statutory cap in the Act to Rs 20 crore capital / Rs 200 crore turnover, the government gains the flexibility to increase thresholds through rules alone without future legislative amendments. The Bill also proposes increasing the CSR net profit threshold from Rs 5 crore to Rs 10 crore, meaning many mid-sized companies that currently qualify for both small company status and CSR obligations may see their CSR requirement removed.

The Bill further proposes allowing companies to hold AGMs virtually (with a mandatory physical meeting once every 3 years) and introduces electronic service of documents. These changes, combined with the expanded small company definition, signal a continued shift toward lighter compliance for India's private company sector.

What the Corporate Laws Amendment Bill 2026 Proposes: Key Changes

The following table summarises the Bill's key proposals relevant to small companies and broader private company compliance:

Key Takeaways

The small company thresholds under Section 2(85) were raised to Rs 10 crore paid-up capital and Rs 100 crore turnover from 01 December 2025 via G.S.R. 880(E), bringing a substantially larger pool of private companies into the reduced compliance bracket.

Small companies benefit from 7 major relaxations: 2 board meetings (not 4), no cash flow statement, MGT-7A (not MGT-7), no CARO, no auditor rotation, abridged director's report, and 50% penalty cap under Section 446B.

The Corporate Laws (Amendment) Bill, 2026 proposes raising the statutory ceiling to Rs 20 crore capital / Rs 200 crore turnover, enabling the government to further increase thresholds through rules without amending the Act.

Small company status is NOT permanent - it is assessed every financial year based on the preceding year's paid-up capital and turnover. Companies must reassess annually and adjust their compliance calendar if status changes.

Public companies, holding/subsidiary companies, Section 8 companies, and companies governed by special Acts are excluded from the small company classification regardless of their financial parameters.

Need Help Navigating the Small Company Compliance Changes?

The December 2025 threshold increase means thousands of private companies now qualify for reduced compliance for the first time. Transitioning your filing calendar - from 4 board meetings to 2, from MGT-7 to MGT-7A, and from full CARO to exemption - requires a deliberate reassessment of your compliance processes.

Explore our annual compliance support for end-to-end guidance on small company classification, filing transitions, and deadline management.

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