MCA Raises ‘Small Company’ Thresholds: What It Means for India’s Growing MSMEs

MCA Raises ‘Small Company’ Thresholds: What It Means for India’s Growing MSMEs

Earlier this month, the Ministry of Corporate Affairs (MCA) notified a significant change under the Companies Act, 2013—one that could materially reshape the compliance and growth journey of thousands of Indian businesses.

Through notification G.S.R. 880(E) dated December 1, the MCA revised the criteria for classifying a company as a “small company.” Companies with paid-up capital of up to ₹10 crore and turnover of up to ₹100 crore will now qualify as small companies. Previously, these limits stood at ₹4 crore and ₹40 crore, respectively.

This recalibration expands the definition of small companies at a time when India’s MSME sector is scaling rapidly. For businesses straddling the line between startup and mid-sized enterprise, the implications are far-reaching—touching growth strategy, compliance costs, governance, and access to capital.

A Wider Runway for Growth-Stage Businesses

For many MSMEs operating in the ₹4–10 crore capital and ₹40–100 crore turnover range, the earlier thresholds forced them into the “regular company” bracket. This came with a heavier compliance load—often before the business was operationally or financially ready.

With the revised limits, these firms can now retain small company status for longer.

Experts say“For growing enterprises, this means they can continue to access the advantages of a corporate structure—such as equity capital, ESOPs, and formal governance—without immediately incurring the heavier compliance overlay designed for much larger companies.”

The result is simple but powerful: resources once spent on regulatory compliance can now be redirected toward product development, scaling operations, expanding distribution networks, or investing in technology.

Analysts also looks on this change as -

 “wider runway to reinvest, innovate, and focus on expansion,”

“ it supports steady, sustainable growth by allowing companies to “retain small-company status longer.”

Meaningful Compliance Relief—Not Just Cosmetic

Being classified as a small company under the Companies Act brings with it a lighter compliance regime, including:

•  Only two board meetings per year (instead of four)

•  No requirement for a cash flow statement in financials

•  Simplified annual returns (Form MGT-7A)

•  Exemption from CARO (Companies Auditor’s Report Order)

•  Relaxed internal financial control reporting

•  No mandatory auditor rotation

•  Reduced filing fees and penalties

•  Exemption from mandatory dematerialisation of shares

•  Eligibility for fast-track mergers under Section 233

”

For founders and management teams, this translates into fewer audits, less paperwork, and lower advisory fees,  allowing entrepreneurs to focus on running and growing their businesses.

Fewer Governance Red Flags, Better Perception

Although the revised definition does not directly change how banks classify MSMEs (which continues to be governed by the MSMED Act and RBI norms), experts believe it significantly improves the operating and compliance environmentfor borrowers and investee companies.

Srikanth explains that reduced compliance complexity lowers the risk of technical non-compliances—often flagged as governance red flags during lender or investor due diligence.

He highlights three ways the amendment can improve credit access and investor sentiment:

1. Lower Cost of Staying Formal and Compliant

Simpler filings, fewer penalties, and reduced reporting requirements make it easier for MSMEs to maintain clean MCA, GST, and income-tax records—an important factor for lenders and rating agencies.

2. Better Alignment with MSME Credit Schemes

Credit programs like CGTMSE, which often support loans up to ₹10 crore, align well with the revised small company thresholds. Transparent statutory accounts, Udyam registration, and consistent digital records can speed up credit underwriting.

3. Leveraging Digital Finance Infrastructure

With over 2.2 billion accounts enabled under the Account Aggregator framework, digitally run small companies with clean books can use consent-based data sharing to improve transparency, underwriting speed, and possibly borrowing costs.

Poojari adds that simpler governance norms lead to cleaner financials, while Singh notes that reduced compliance pressure strengthens financial stability—something banks and investors typically favour.

Immediate and Long-Term Impact

All three experts agree that the first and most visible impact will be on finance and compliance costs—through reduced audit requirements, fewer filings, and lower professional fees.

Next comes improved governance and formalisation. With compliance barriers lowered, many growing MSMEs may choose to incorporate earlier and adopt structured governance sooner.

Operational costs related to board logistics, audits, and documentation will also ease—particularly for tech-enabled businesses that can now redeploy legal and accounting bandwidth toward planning, analytics, and operations.

Over time, this may encourage expansion and risk-taking, as companies feel more confident scaling revenue, hiring talent, or entering new markets without facing an immediate “compliance shock.”

As Singh puts it:

“The change creates space to build sustainable business models with stronger operational resilience and long-term value creation.”

The Bigger Picture

As of FY2024, over 7.26 crore MSMEs were registered on the Udyam portal, employing nearly 29.7 crore people as of September 2024. Against this backdrop, expanding the definition of a small company is a timely step toward accelerating the formalisation of growth-stage MSMEs.

However, experts caution that this is only part of the solution.

Of course adopting a common MSME definition across major laws, creating a single digital compliance portal, enforcing timely payments to MSMEs, and incentivising digital bookkeeping and secure data sharing also needed to give bigger implications. Changes in tax laws, compliance system without compromising its integrity also the need of the hour.

Bottom Line

The revised small company thresholds mark a pragmatic and growth-oriented reform. By easing compliance at a critical stage of business evolution, the MCA has given India’s MSMEs more room to scale, formalise, and compete—without being weighed down too early by disproportionate regulatory burdens.