Union Budget 2021 - Revision in 'Small Companies' Definition



Quick Summary
The Union Budget 2021 has introduced significant changes aimed at supporting small companies and start-ups. The definition of a 'small company' has been revised, increasing the thresholds for paid-up capital to Rs 2 crore and turnover to Rs 20 crore. This revision is expected to benefit over two lakh companies by simplifying their compliance obligations. Additionally, rules for One Person Companies (OPCs) have been eased to encourage start-ups and innovators, including removing restrictions on capital and turnover, and allowing NRIs to incorporate OPCs.

DECRIMINALISATION OF THE LIMITED LIABILITY PARTNERSHIP (LLP) ACT, 2008 PROPOSED

REVISION IN 'SMALL COMPANIES' DEFINITION

PROPOSED EASING OF RULES IN 'ONE PERSON COMPANIES' FOR START-UPS, INNOVATORS

STRENGTHENING OF NCLT FRAMEWORK FOR FASTER DEBT RESOLUTION

PROPOSED LAUNCH OF NEW MCA21 VERSION 3.0

Union Minister for Finance & Corporate Affairs Smt. Nirmala Sitharaman proposed reforms for small companies and MSMEs to strengthen Start up ecosystem, while presenting Union Budget 2021-22 in Parliament here today.

Decriminalisation of the Limited Liability Partnership (LLP) Act, 2008

The Finance Minister proposed to take up decriminalisation of the Limited Liability Partnership (LLP) Act, 2008 on similar lines of the decriminalising of the procedural and technical compoundable offences under the Companies Act, 2013, which is now complete.

Revision in 'Small Companies' definition

Smt. Sitharaman proposed to revise the definition under the Companies Act, 2013 for Small Companies by increasing their thresholds for Paid up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”. This will benefit more than two lakh companies in easing their compliance requirements.

Small Company Definition Revised in Union Budget 2021

Proposed easing of rules in 'One Person Companies' for Start-Ups, Innovators

As a further measure which directly benefits Start-ups and Innovators, the Finance Minister proposed to incentivize the incorporation of One Person Companies (OPCs) by allowing OPCs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non Resident Indians (NRIs) to incorporate OPCs in India.

Strengthening of NCLT framework for faster debt resolution

To ensure faster resolution of cases, the Finance Minister stated that NCLT framework will be strengthened, e-Courts system shall be implemented and alternate methods of debt resolution and special framework for MSMEs shall be introduced.

Launch of new MCA21 Version 3.0

During the coming fiscal 2021-22, the Finance Minister said the Government will launch a data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0. This Version of MCA 3.0 will have additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.

FAQ :

The definition of a 'small company' has been revised with increased thresholds. Paid-up capital can now be up to Rs 2 crore (previously Rs 50 lakh), and turnover can be up to Rs 20 crore (previously Rs 2 crore).

More than two lakh companies are expected to benefit from the revised definition of 'small companies'.

Rules for OPCs have been eased to benefit start-ups and innovators. This includes allowing OPCs to grow without restrictions on paid-up capital and turnover, reducing the residency limit for Indian citizens to set up an OPC, and permitting Non-Resident Indians (NRIs) to incorporate OPCs.

Yes, the budget also proposes the decriminalisation of the Limited Liability Partnership (LLP) Act, 2008, strengthening the NCLT framework for faster debt resolution, and the launch of a new data analytics, AI, and machine learning-driven MCA21 Version 3.0.

The NCLT framework will be strengthened to ensure faster resolution of cases, with the implementation of an e-Courts system and the introduction of alternate debt resolution methods and a special framework for MSMEs.




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