Corporate Affairs Ministry Amends Definition of Small Companies

The ministry of corporate affairs (MCA) has revised the definition of a small company by amending the Companies Rules. This was announced by Finance Minister Nirmala Sitharaman while presenting the Union Budget 2021-22.

Key Points

  • This amendment in the Companies Act has revised the definition of small companies.
  • This amendment will come into effect from April 1, 2021.
  • As per the official notification, the turnover and paid-up capital of a small company should not exceed Rs 20 crores and 2 crores respectively.
  • As per the previous definition of the small company defined by the Companies Act, such a company should have a turnover of Rs 2 crore and a maximum paid-up capital of Rs 50 lakh. This was applicable till the previous financial year.
  • This change in the definition will lighten the compliance burden of around 200,000 companies.

One Person Companies

  • The amendment in the Companies act also allows non-resident Indians to incorporate one-person companies (OPCs) in the country.
  • Also, the residency limit of a person to qualify as a resident of India has been reduced.
  • A person will qualify as a resident of the country if he stays for 120 days now. The previous residency limit was 182 days.
  • Also, OPCs should be allowed to convert to any type of company at any time.

This amendment will be beneficial for startups. This will also attract more investments from NRIs.