What Is a Small Company?
A small company is a private limited company that qualifies for a lighter compliance regime under Indian company law because its paid-up share capital and turnover fall below government-prescribed ceilings. The concept is defined in Section 2(85) of the Companies Act, 2013, and the ceilings themselves are fixed separately by Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014. A company that meets the size test is not a different type of legal entity — it remains a private limited company — but it is exempted from several board-meeting, cash-flow-statement, audit-rotation and annual-return obligations that apply to larger private companies.
The Ministry of Corporate Affairs (MCA) has raised the size ceilings more than once since 2013, so older guidance is often out of date. They were last raised by the Companies (Specification of definition details) Amendment Rules, 2025 dated 1 December 2025, which set the current limits at ₹10 crore of paid-up share capital and ₹100 crore of turnover. That is a large jump: the previous limits, in force from 15 September 2022, were ₹4 crore and ₹40 crore, and before that ₹2 crore and ₹20 crore. A company excluded a year ago under the older ceilings may well qualify today, and any guidance still quoting ₹4 crore and ₹40 crore is out of date.
Legal Basis
Section 2(85) of the Companies Act, 2013
Section 2(85) defines "small company" as a company, other than a public company, whose paid-up share capital and turnover — as shown in its last audited financial statement — do not exceed the limits prescribed by rule. The definition carries a proviso excluding several categories of company outright, regardless of how small their capital or turnover is (see below).
Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014
Rule 2(1)(t) is the delegated-legislation provision that actually fixes the rupee ceilings Section 2(85) points to. Because the ceilings sit in a Rule rather than in the Act itself, the government can revise them by notification without amending the Act — which is exactly what has happened more than once, most recently on 1 December 2025. The Rule now reads: "For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees ten crores and rupees one hundred crores respectively." Both figures are tested against paid-up capital and turnover as shown in the company's own financial statements — not against authorized or issued capital, and not against a current-year projection.
Current Thresholds
| Test | Current limit under Rule 2(1)(t), from 1 December 2025 | Previous limit, 15 September 2022 to 30 November 2025 |
|---|---|---|
| Paid-up share capital | Does not exceed ₹10 crore | ₹4 crore |
| Turnover | Does not exceed ₹100 crore | ₹40 crore |
A company must satisfy both conditions — a company with negligible paid-up capital but turnover above the ceiling (or the reverse) is not a small company. MCA's e-filing help page for Forms MGT-7 and MGT-7A states that "the small company status is determined as on the date of filing the relevant form," so a company's status can change from one financial year to the next as its capital or turnover moves across the line, or when an AOC-4 filing updates the flag in MCA's system.
Which Companies Are Always Excluded?
Section 2(85)'s proviso excludes the following companies from small-company status outright, however small their paid-up capital or turnover is:
- A holding company — a company that controls another company is never a small company, whatever its own size.
- A subsidiary company — a company controlled by another company, Indian or foreign, is excluded even if the subsidiary itself is tiny. This is the exclusion that matters most for a foreign investor: an Indian subsidiary that is wholly or majority owned by a foreign parent is a subsidiary company, and therefore can never be a small company no matter how low its paid-up capital or turnover is. MCA's own filing guidance for the small-company classification flag lists holding-company and subsidiary-company status alongside turnover and paid-up capital as the conditions it checks.
- A company registered under Section 8 of the Companies Act, 2013 (a non-profit company).
- A company or body corporate governed by any special Act — one incorporated under its own separate statute rather than under the Companies Act.
Reliefs Available to a Small Company
Once a company qualifies, several compliance obligations are relaxed:
Fewer Board Meetings
Section 173(5) lets a small company hold just two board meetings a year — one in each half of the calendar year, with a minimum gap of 90 days between them — instead of the general requirement of at least four board meetings a year with no gap exceeding 120 days.
No Cash Flow Statement
The proviso to the definition of "financial statement" in Section 2(40) excludes a small company, alongside a One Person Company, a dormant company and a start-up private company, from having to include a cash flow statement among its financial statements filed with Form AOC-4.
Usually Outside the Auditor-Rotation Requirement
Mandatory rotation of the statutory auditor under Section 139(2) applies to listed companies and to the classes of company prescribed by Rule 5 of the Companies (Audit and Auditors) Rules, 2014. Those prescribed classes are defined by their own thresholds, set well above the small-company ceilings, so a small company will normally sit outside the rotation requirement. Note that this is a by-product of the company's size rather than a small-company carve-out written into the rule, so a company should test itself against Rule 5 on its own numbers rather than assume small-company status settles the question.
Abridged Annual Return — Form MGT-7A
Instead of the standard Form MGT-7 annual return, a small company — like a One Person Company — files the shorter Form MGT-7A. MCA's own service listing for the form describes MGT-7A as the "Abridged Annual Return for OPCs and Small Companies," confirming the form is specific to this category.
Why This Matters for a Foreign-Owned Indian Company
Most foreign investors setting up in India incorporate a private limited company as a wholly owned or majority-owned subsidiary. That structure is, by definition, a "subsidiary company" under the Companies Act — which means it is automatically excluded from small-company status under Section 2(85)'s proviso, regardless of how modest its paid-up capital or turnover is in its first year. A newly incorporated Indian subsidiary with, say, ₹1 lakh paid-up capital and no revenue is still not a small company if a foreign parent controls it, and it therefore does not get the reduced board-meeting frequency, the cash-flow-statement exemption, or Form MGT-7A. It must hold at least four board meetings a year and file the full Form MGT-7 like a large private company. The relief is realistically available only to companies that are not anyone's subsidiary — for example, an Indian company with a genuinely diversified shareholder base, or a joint venture structured so that no single shareholder holds control.
Practical Example
Meridian Tech India Pvt Ltd is incorporated as a wholly owned subsidiary of a US parent, with ₹25 lakh paid-up capital and no turnover in its first year. Even though ₹25 lakh is far below the ₹10 crore ceiling, Meridian Tech India is a subsidiary company and is excluded from small-company status by Section 2(85)'s proviso. It must hold a minimum of four board meetings during the year, include a cash flow statement in its financial statements, and file the full Form MGT-7 — the same obligations as a much larger private company with no foreign parent.
Frequently Asked Questions
Can a company be a small company in one year and lose that status the next?
Yes. Status is tested each year against the paid-up capital and turnover in the company's latest audited financial statement, and MCA determines it as on the date of filing the relevant form. Crossing either ceiling, or becoming a subsidiary of another company, moves the company out of small-company status; falling back below the ceiling can restore it.
Does a One Person Company automatically qualify as a small company too?
No. A One Person Company and a small company are separate categories that happen to share some reliefs, such as filing Form MGT-7A instead of MGT-7. An OPC is defined by having a single member, not by its capital or turnover, and a company can be one, both, or neither.
Is every private company under the size ceilings automatically a small company?
Only if none of the Section 2(85) exclusions apply. A private company that is a holding company, a subsidiary of another company, registered under Section 8, or governed by a special Act is not a small company even when its paid-up capital and turnover are well under ₹10 crore and ₹100 crore.
Do small companies still need a statutory audit?
Yes. Every company registered under the Companies Act, including a small company, must have its accounts audited annually. What changes is the rotation requirement, not the audit requirement itself — a small company will normally keep the same auditor without the periodic rotation that Rule 5 of the Companies (Audit and Auditors) Rules, 2014 imposes on the classes of company it covers.
Where should I check the current paid-up capital and turnover ceilings before relying on them?
The ceilings sit in Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014, not in the Act, so the government can revise them by notification at any time — as it has done more than once already. Check the current text of that Rule and the notifications amending it at the time of filing, rather than relying on an older secondary source. The limits were raised as recently as 1 December 2025, and a great deal of published guidance still quotes the superseded ₹4 crore and ₹40 crore figures.
See also: Private Limited Company, Paid-Up Capital, and One Person Company.