How to Reclassify Your Company as a Small Company Under the New 2025 Rules

Has your private limited company reviewed its eligibility under the MCA’s new Small Company definition? If your paid-up capital is ≤ ₹10 crore and turnover is ≤ ₹100 crore, you qualify for significant compliance relief.

This is not an automatic label you can claim. To formally secure the status and its benefits for the current financial year, you must follow a clear procedural path.

This guide provides a complete step-by-step process for reclassifying your existing company to Small Company status under the new MCA rules.

Prerequisite Reading: This guide details the process. Before starting, ensure you understand the new thresholds, key benefits like audit exemptions, and crucial exclusions. Read our comprehensive overview: MCA Revises Small Company Definition: New Limits, Benefits & Impact for 2025.

Key Takeaways

• Check eligibility first (₹10 crore capital, ₹100 crore turnover).
• Document your financial review — MCA may ask later.
• Resolve the 2025 filing ambiguity with a CS/CA before filing anything.
• Switch your internal processes to the Small Company regime for FY 2025–26.

Quick Reference: Am I Eligible for Reclassification?

New Small Company Thresholds (December 1, 2025)

Your company qualifies if BOTH conditions are met:

• Paid-up Share Capital: ≤ ₹10 crore
• Annual Turnover: ≤ ₹100 crore

Companies That Cannot Reclassify

Even if you meet financial limits, you cannot reclassify if you are:

• Public company
• Holding or subsidiary company
• Section 8 company (non-profit)
• Company governed by a special Act
• Banking, insurance, or NBFC

Important: Only private limited companies that are not subject to the exclusions may reclassify as Small Companies.

Why Reclassify as a Small Company?

1. Direct Cost Savings

Reduced Audit Fees: Save ₹1-5 lakhs annually via simpler procedures and exemption from IFC reporting through professional audit services.

Lower Compliance Costs: Cut secretarial/accounting costs by 20-30% by eliminating cash flow statements and using abridged reporting with accounting and bookkeeping services.

Board Meeting Overhead: Save ₹0.5-2 lakhs annually by halving meeting frequency (from four to two).

2. Operational & Strategic Advantages

Focused Governance: Spend less time on compliance formalities, more on business strategy.

Faster M&A: Eligible for fast-track mergers (Section 233), enabling quicker restructuring.

Reduced Scrutiny: Simplified disclosures often result in fewer regulatory examinations.

Better Borrowing Terms: Lenders may view the classification favourably, leading to more favourable terms.

3. Tax & Financial Planning Benefits

Concessional Tax Rates: Eligible manufacturing companies may access tax rates of 15-25%, compared with the standard 30%.

Startup Tax Holiday: If DPIIT-recognised, claim a 100% profit tax holiday for 3 out of 10 years.

Efficient Distributions: Potential relief on dividend distribution tax withholding.

Step-by-Step Process to Re-Classify as a Small Company

1. Conduct a Financial Assessment Using Audited Numbers

Start by reviewing your audited financial statements for FY 2024–25. This assessment is the basis for determining whether you can move to Small Company compliance effective as of the effective date.

Check the following from your financials:

• Paid-up share capital as per the balance sheet
• Turnover from operations (excluding other income)
• Any upcoming capital increases (such as share buybacks or new issuances) or business expansions that may affect next year’s status

This evaluation should be documented and retained for future ROC reference.

2. Confirm That Your Company’s Structure Allows Re-classification

Before initiating filings or procedural changes, examine your company’s legal structure:

• Whether it is incorporated as a private company
• Whether it falls under any organisational categories that restrict compliance relaxations
• Whether there are ongoing transactions (e.g., conversion from partnership, restructuring, fundraising) that may affect status in the current year

This prevents premature adoption of Small Company compliance and avoids filing inconsistencies.

3. Prepare Documentation for Re-classification

Once you are sure about your company’s eligibility based on the effective date, gather all required documents, including:

• Audited financial statements for FY 2024–25
• Most recent MOA and AOA
• Director documents and updates DSCs
• Statutory registers (Members, Directors, Shares, etc.)
• Internal compliance tracker
• Proof that annual filings up to FY 2023–24 are completed

This documentation will support your filings and any subsequent MCA inquiries.

4. Pass a Board Resolution Before Claiming the New Status

A formal board meeting is necessary to authorise the shift to Small Company compliance.

Your Board Resolution should cover:

• Confirmation of your financial evaluation
• Approval to adopt compliance relaxations from the effective date
• Authorisation to file annual returns under the revised category
• Instructions for revising internal compliance timelines
• Delegation of authority to directors/CS/consultants to complete ROC filings

Ensure the Board Minutes clearly record the company’s financial position, the effective date, and the rationale for reclassification.

5. Address the Transitional Filing Ambiguity for FY 2024–25

This year’s compliance cycle involves a unique complication:

• The Annual Return filing deadline for FY 2024–25 has been extended to 31 December 2025.
• But the Small Company amendment becomes effective 1 December 2025.

This creates a grey area:

Can a company that did not qualify on 31 March 2025 file MGT-7A if it qualifies on 1 December 2025?

This is awaiting MCA clarification.

Recommended action:

• Consult your CS/CA on whether to use MGT-7 or MGT-7A
• Maintain internal documentation justifying the position taken
• If in doubt, adopt the conservative approach until official clarification is issued

For cash flow statement exemption and other benefits tied to the financial year rather than the effective date, professional advice is essential.

6. Make the Necessary ROC Filings After Board Approval

Once your company has formally adopted Small Company status, reflect it correctly in your statutory filings.

Key filings may include:

• Annual Return (Form MGT-7 or MGT-7A) – depending on transitional guidance
• Board resolution and declarations
• Updated financials
• Any other forms triggered by a change of compliance category

All filings must be digitally signed and submitted through the MCA portal.

7. Update Your Internal Compliance Calendar

Re-classification also means revising your internal schedules, formats, and processes.

Update:

• Number of annual board meetings (effective FY 2025–26)
• Reporting templates (director’s report, financial statements, disclosures)
• Secretarial records
• Audit scoping and timelines
• Internal control documentation
• Documentation requirements for next year’s filing cycle

This ensures that your next financial year starts with an accurate compliance structure.

8. Communicate the Change to Key Stakeholders

Proper stakeholder communication prevents compliance gaps and filing inconsistencies.

Inform:

• Auditors – to modify audit plans, adjust working papers, and remove IFC/CARO requirements if applicable
• Company Secretaries – to update secretarial calendars and ensure correct forms
• Bankers & Lenders – some may require updated compliance categorisation
• Internal Finance & Legal Teams – to implement revised governance timelines
• Investors & Promoters – especially if the change affects corporate strategy, restructuring, or compliance posture

Clear communication avoids confusion during audits or future scrutiny.

9. Monitor Your Financial Thresholds Every Financial Year

Small Company status is not permanent.

Create an annual evaluation process that:

• Reviews audited numbers within 30 days of the FY close
• Tracks paid-up capital changes (e.g., new allotments, rights issue, ESOP exercise)
• Reviews turnover trends quarterly
• Prepares for automatic reversion to regular compliance if thresholds are crossed

This ensures your company maintains compliance and avoids penalties arising from incorrect categorisation.

10. Prepare for FY 2025–26 Compliance Under the New Status

Once re-classified, your company will follow the revised compliance structure from 1 April 2025 onward, including:

• Reduced board meetings
• Simplified reporting
• Shorter annual return format
• Adjusted auditor responsibilities
• Lower penalties for defaults

Ensure your team is trained and up to date on these operational changes.

When You Should Definitely Seek Professional Help

Because this amendment interacts with live filing deadlines and multiple forms, professional input is not optional in some instances:

1. You did not qualify as a Small Company on 31 March 2025, but do qualify after 1 December 2025, and your FY 2024–25 filings are still pending.

2. You are in or near any borderline situation, such as:

• Turnover or paid-up capital just below the new threshold.
• Group structures where holding/subsidiary issues could arise.

3. You intend to use all possible relaxations (MGT‑7A, no cash flow statement, reduced meeting frequency, lesser penalties under Section 446B, etc.) and want a defensible, documented position. ​

In such scenarios, taking a view in isolation without written advice from a CS/CA can create avoidable risk. Leveraging virtual CFO or compliance advisory support for one cycle can give you a clean, well-documented transition.

Bottom Line: Make the Amendment Work for You, Not Against You

The 2025 MCA amendment is clearly designed to expand relief and make compliance more proportionate for growing private companies. The challenge is not understanding the new thresholds, but implementing them correctly during a transitional filing year and embedding the new regime into your internal processes.

Need Help with Small Company Reclassification? Contact our expert company secretary services or chartered accountant team for professional guidance on MCA compliance and strategic advisory.