Recently, the Indian government has been facing a lot of flak over the sorry state of affairs ruining the startup ecosystem in India.

To rejuvenate the sector and provide a new moment, the central government has decided to confer various incentives to the start-up fraternity – this is intended to be an exercise to enthuse the budding entrepreneurs and strengthen the economic/development prospects of the startup ecosystem from a larger perspective.

Following is the gist of the newly proposed set of incentives for start-up fraternity:

  • Startups will be permitted to issue 50% of paid up share capital in the form of sweat equity shares.
  • Startups will be exempted from the submission of regulatory filings for a period of 10 years as against the existing exemption period of 5 years.
  • The aforesaid proposition will facilitate the startups (under the age of 10 years) to pay the employees compensation via sweaty equity shares and expand the ambit of raising funds for business expansion.
  • Exemption from the submission of regulatory filings may facilitate the startups to conduct one board meeting for every six months rather than 4 board meetings in a year.
  • Existing exemption period (i.e 5 years) from the submission of regulatory filings will be extended to 10 years via revision of existing start-up definition by Department for Promotion of Industry and Internal Trade (DPIIT) in this regard.
  • Startups would have the flexibility to raise capital deposits in excess of 100% of their paid-up share capital.

In order to give official recognition/validity to the aforesaid proposed incentives, the central government would have to tweak certain provisions of the Companies Act, 2013.

The beauty of these proposed incentives is that they will ease the compliance pressure on the startups and will provide them with the window to focus on the business expansion and overall organizational development.

Another advantage of these proposed incentives is that startups will have much needed flexibility in terms of finance and business operations due to ease of compliance burden on the startup fraternity and incentives conferred by the central government on the start-up fraternity.

One may expect the central government to soon roll out a notification making these proposed incentives officially effective. Implementation of these proposed incentives will provide the start-up fraternity with much needed breather space in terms of regulatory filings and financial flexibility and will certainly uplift the development prospects of startup a system to the level.