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9 February 2021
Amendments to company law pursuant to budget 2021-22
On 1 February 2021, the Hon’ble Finance Minister presented the Union Budget 2021-22. The budget speech referred to certain proposals on company matters to facilitate ease of doing business. In furtherance to that, the Ministry of Corporate Affairs notified amendments to the relevant provisions of the Companies Act, 2013 and rules (CA 2013) made thereunder.

We list the gist of amendments made to CA 2013 in pursuance of budgetary announcements:

Provision Amendment
Change in definition of ‘small company’ An amendment is made to the Companies (Specification and Definitions Details) Rules, 2014, whereby the threshold limit of paid-up capital and turnover to qualify as a ‘small company’ has been increased. Accordingly, a company that has:
  • paid-up capital not exceeding INR 20 million and
  • turn over not exceeding INR 200 million shall be considered as a ‘small company.’
Earlier, ‘small company’ was defined as a company other than a public company having paid-up share capital not exceeding INR 5 million and turnover not exceeding INR 20 million.
Changes to One Person Company (OPC) framework Following amendments are made to the Companies (Incorporation) Rules, 2014:
  • Now non-residents can set up an OPC (earlier, only residents were allowed to do so);
  • Residency rule for the person setting up an OPC has been relaxed. Accordingly, a person needs to be resident in India for 120 days as compared to the earlier rule of 182 days;
  • Monetary limit for conversion of OPC into any other form of corporate (except non-profit organization) has been removed. Earlier, an OPC with paid-up capital of INR 5 million or less and turnover of INR 20 million or less was allowed to be converted as such.
Merger or amalgamation of start-up companies Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, has been amended to provide that a scheme of merger or amalgamation under section 233 of CA 2013 may be entered into between:
  • two or more start-up companies; or
  • one or more start-up companies with one or more small companies.
Further, a start-up company is defined as a company incorporated under CA 2013 or previous company law and recognized as such in accordance with notification number G.S.R. 127 (E), dated 19 February 2019, issued by the Department for Promotion of Industry and Internal Trade.

With this, the start-up company has been recognized as a class of company for the purpose of merge with the approval of the Central Government, popularly known as ‘fast track merger.’ Earlier, a merger between small companies or between a holding company and its wholly-owned subsidiary company was recognized as a class of companies to avail route of fast track merger.
Our Comments
Small company status offers relaxation from various provisions of CA 2013 and eases compliance burden on them. As mentioned in the budget speech, the increase in the threshold limit for a small company is likely to benefit 200,000 companies. Changes to the OPC regulatory framework offers motivation to grow without any restriction of paid-up capital and turnover, augmenting foreign capital and technology. Recognition of start-up company as a class of company for the purpose of fast track merger allows start-up option to explore restructuring without necessarily going to the National Company Law Tribunal (NCLT) for sanction. Overall, the thrust of budget on company matters was on facilitating ease of doing business. In that direction, it proposes to decriminalize the provisions of the Limited Liability Partnership Act 2008, strengthening of NLCT framework, and launching data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0 with additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.
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