Ministry of corporate affairs eases deposit rules for start-ups

By: |
September 9, 2020 6:15 AM

The amendment allows start-ups to raise funds through corporate bonds or other convertible instruments for 10 years as against 5 years earlier.

Welcoming the development, Partner at Nangia Andersen, Sandeep Jhunjhunwala said the relaxation in acceptance of deposits norms promotes the ultimate goal of a strong ecosystem for start-ups in India.Welcoming the development, Partner at Nangia Andersen, Sandeep Jhunjhunwala said the relaxation in acceptance of deposits norms promotes the ultimate goal of a strong ecosystem for start-ups in India.

The ministry of corporate affairs (MCA) has amended the rules related to acceptance of deposits by companies, a move that offers more flexibility to start-ups for raising funds at a time when Covid-19 has severely impacted the economy and businesses, especially MSMEs and start-ups.

The amendment allows start-ups to raise funds through corporate bonds or other convertible instruments for 10 years as against 5 years earlier.

Under the new rule, an amount of up to Rs 25 lakh received by a start-up in a single tranche by way of a convertible note (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in a single tranche, from a person will not be considered ‘deposits’ under company law compliance.

MCA amended the Companies (Acceptance of Deposits) Rules, 2014, to change the period of repayment from five to 10 years. A convertible instrument is an investment that can be changed into another form. These generally are convertible bonds and convertible preferred stock, which can be converted into common stocks.

Welcoming the development, Partner at Nangia Andersen, Sandeep Jhunjhunwala said the relaxation in acceptance of deposits norms promotes the ultimate goal of a strong ecosystem for start-ups in India.

“With the pandemic causing a mammoth impact on the Indian economy, start-ups are looking for ways to raise funds and revive their business. Flexibility with an extended term of repayment of 10 years provides start-ups registered as a private limited company an alternative opportunity to attract investors and raise funds up to 25 lakhs in one tranche via the option of convertible instruments without facing the risk of being regarded as a deposit, which is otherwise prohibited under the Companies Act,” he added.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Govt forms five task forces to make Indian MSMEs future-ready: Secy
2Unacademy acquires UPSC test preparation platform Coursavy
3Hero MotoCorp’s Pawan Munjal, DCM Shriram’s chief invests in ShareChat’s TikTok alternative Moj