Ministry of Corporate Affairs Proposes to Offer 50 Per Cent Sweat Equity and Ease Regulations for Startups

In a bid to promote the startups, the Indian government has reportedly proposed to permit startup firms to issue sweat equity and additionally, easing some regulations under the Companies Act. After abolishing the angel tax and extending the definition of the startups, this is another step that the government is taking to boost entrepreneurship in the country

According to The Economic Times’ report, the Ministry of Corporate Affairs plans to allow startups to issue 50 per cent of their paid-up capital as sweat equity and extend the period of exemptions from other regulatory filings for up to 10 years instead of five now. They will be exempted for 10 years from a rule that bars private companies from raising deposits exceeding 100 per cent of their paid-up share capital.

“Exemptions already given to startups for five years will be available for 10 years, in line with the revised definition by the Department for Promotion of Industry and Internal Trade,” an official told the cited media agency.

“A notification would be issued soon to put into effect the proposed changes, although the relaxation of norms on financial filings for startups would require an amendment to the Companies Act,” the official added. 

Earlier this year, the Department for Promotion of Industry and Internal Trade (DPIIT) changed the definition of the startups, considering the business entities as startups for an expanse of 10 years for the date of their initiation. 

Provisions to exempt startups from filing cash flow statements in their annual filings and allowing them to hold only one board meeting every six months instead of four every year may need parliamentary approval.

Besides this, there are other propositions that the statutory body has made--exempting entrepreneurs from filing cash flow statements in the annual filings and changing the company’s board meeting time from every four months to six months. These proposals still require approval from parliament.  

The cited media agency also reported that the proposition of amendments in the Companies Act and allied laws will offer the Indian startups financial as well as operational flexibility. The startups will witness a reduction in cost, as well as time, as they conform to the government’s policies.  

The Indian Government Easing Business Conditions for Startups 

In the past, the government has taken several moves to ease the business ecosystem for Indian startups. Lately, it has put an end to the angle tax, which levies taxes on startups receiving angel investments.

In October this year, DPIIT proclaimed that it was approaching the central government cabinet to receive consent for the execution of a comprehensive vision document to promote startups in the country. Other proposals by the statutory body encompass establishing 500 fresh accelerators and incubators along with constructing innovation zones in urban areas. Further, it plans to utilize the entire collected INR 10k crore fund associated with Startup India, for launching a seed fund and creating a credit guarantee scheme.