MCA circular dated 7th September, 2020 amending the Companies (Acceptance of Deposits), Rules, 2013 allowing start up companies to accept deposits upto a period of 10 years from the date of their incorporation. Start-ups, of course is defined in the DIPP guidelines to that effect, which is now known as Department for promotion of Industry and Internal Trade.
Start-ups can accept deposits of an amount of Rs.25 lakhs or more by way of convertible note, convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue in a single tranche;
Further maximum limit for acceptance of deposits under section 73 of the Companies Act, 2013 shall not apply to a private company which is a start for a period of 10 years from the date of its incorporation.
Hitherto, the period in both the cases was 5 years.
Just finished reading “$100 start up” by Chris Guillebeau – this guy is a successful serial micro entrepreneur and the book has lots of insights on building a business with very little investment, as low as $100 or even less. All it requires is ideas, a solid product, which people want and which gives value to people. So there should be a want and it should carry value. He takes the reader through the entire process of building a small business with examples from various such micropreneurs who have successfully built their businesses. Its an online world so all it takes is passion with a desire to build business. Some cases are accidental in the sense that people study for one thing, they have passion in another area and it is a cross between choosing a boring day job or pursuing your passion. Highly recommended for would be micro entrepreneurs.
MCA has issued a notification dated 5th June, 2020 regarding sweat equity shares for start-ups as follows.
Start-ups as defined in DIPP notification dated 19th february, 2019 i.e.
An entity shall be considered as a Startup: i. Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India. ii. Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees. iii. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
Such start-ups may issue sweat equity shares not exceeding 50% of its capital upto 10 years from the date of its incorporation or registration as the case may be.
Earlier it was for a period of 5 years but with the DIPP definition of start-up giving it a leeway upto 10 years, this was to align with the DIPP rules.
Non start-up companies can issue sweat equity shares upto 15% of its paid up capital in a year or upto Rs.5 crores value of sweat equity shares, whichever is higher. However, the total issue of sweat equity shares in a non start up company cannot exceed 25% of its paid up capital. These two limits i.e. the per year lower limit and the overall limit is not there in a start up company.
The DIPP circular regarding start-ups can be found here