New Delhi, June 21, 2017

In fillip to start-up ecosystem, Centre relaxes some compliance requirements

The Centre is focused on maintaining the excitement around start-ups, going by the Ministry of Corporate Affairs’ (MCA) latest effort to give a leg-up to the start-up ecosystem in the country.

For the first time ever, the concept of “start-up” has been introduced in the company law by the MCA, which is the administrative ministry concerned.

The MCA has not only defined “start-up” through an executive order under the Companies Act, 2013, but has also given few operational and compliance relaxations for a “start-up company”.

As per this definition, a start-up company means a private company incorporated under the Companies Act, 2013 and recognised as a “start-up” in accordance with the notification issued by the Department of Industrial Policy and Promotion.

The relaxations relate to allowing start-ups to raise deposits from members (shareholders), with exemption from procedural compliance for five years.

Also, start-ups would not be required to prepare cash flow statements. Relaxation has also been provided on the board meetings front. A company secretary of a start-up or a director can now sign the annual return.

Sensing growth

“This MCA move is a positive development, though there may be no tangible impact. It is going to give a psychological comfort and boost to start-ups in the country,” said Nirav Maniar, Partner and Head - Corporate Legal and Information Technology at International Business Advisors.

“There is clear realisation on part of the government that this (start-ups) is where growth is. This could also be seen as the first of the several steps that is on the anvil for developing the start-up ecosystem.”

Maniar also said that real help for start-ups could come if the government were to specify a threshold below which they are not required to handle certain compliances.

He also said that the RBI has already been covering the aspect of start-ups in its circulars for FEMA-related notifications.

Lalit Kumar, Partner at law firm J Sagar Associates, said the concept of start-ups was never present in the Indian company law till the latest MCA move.

“The relaxations to compliance requirements are good, but there’s very little as regards what need to be done for them. They have only given simple exemptions and these are not material,” he told BusinessLine.

[The Hindu Business Line]