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Changes in Deposit Rules by Corporate Affairs for Startups

Ministry of Corporate Affairs
Smt. Nirmala Sitharaman, Minister of State for Corporate Affairs

The MCA (1) has made amendments in the rules about the acceptance of company deposits. It will increase the flexibility of startups to raise funds. The move is significant as the pandemic has severely impacted the economy and business.

The new amendment (2) will allow startups to raise funds via corporate bonds and other convertible measures for ten years instead of five years. The new rules have also revised the repayment period from five years to ten years. Apart from this, when a startup receives 25 lakh INR via a convertible note as a single tranche, it will not be considered as deposits under law compliance of the company.

Indian Startup Ecosystem to Get Several Benefits from the New MCA Rules

Earlier in June, the Corporate Affairs Ministry also changed the definition of startups. It is now in-line with the description used by DPIIT, Department of Promotion of Industry, and Internal Trade.

As per DPIIT, an entity is a startup for ten years from the date of incorporation. There is a deviation in the definition of MCA. It is also applicable for companies incorporated as a private limited company, limited liability partnership, or a partnership firm.

Under the new definition of MCA, startups can now issue stock options for employees ten years from their incorporation instead of five. ESOPs are a popular compensation tool in the ecosystems of Indian startups. It provides employees with shares in the company they are working in. Apart from these, the department has also increased the 25 Crore INR turnover limit to 100 Crore INR.

As per the reports, the development came as India’s government is releasing a draft report to pave Indian companies to list themselves in the overseas market without listing in India. The ministry proposes the changes to FEMA, the Foreign Exchange Management Act, Companies Act, and the Income Tax Act.

The changes also include the taxing share transfer in the India amendment. It also has provisions under the Companies Act 2013 to list stock exchanges in permissible foreign jurisdictions.

An Indian company can only list on the foreign exchange after it is listed in India. MakeMyTrip incorporated itself first in Mauritius to list Nasdaq, a US-based overseas listing with going public in India.