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Regulatory Insights
from India Tax & Regulatory Services
Companies (Acceptance of Deposits) Rules, 2014 amended to provide relaxation of acceptance of deposits by start-ups
8 September 2020
In brief
The Ministry of Corporate Affairs (MCA) has amended1 the Companies (Acceptance of Deposits) Rules, 2014 (Deposit Rules) prescribing certain relaxations for deposits received by start -up companies.
In detail
Exemptions for “start-up company”
The MCA has amended the Deposit Rules in the following manner:
(i) Earlier, the Deposit Rules had prescribed that an amount received by a start-up company via a convertible note will not be considered as deposit if it is convertible into equity shares or repayable within a period not exceeding five years from the date of issue. Now, with this amendment, this time period of conversion or repayment has been increased to ten years, thereby, enabling a start -up company to raise money with a longer tenure.
In addition, the concept of “start-up company” for the purpose of the above clause, has been changed and is now to be recognised in accordance with the notification2 issued by the Department for
Promotion of Industry and Internal Trade.
(ii) Earlier, the Deposit Rules had prescribed that the restriction on the maximum amount of deposits accepted or renewed by a company from its members will not apply to a private limited company that is a start-up, for five years from the date of its incorporation. Now, pursuant to the current amendment, this time period has been extended to ten years from the date of incorporation of the private company, which is a start-up.
The takeaways
These amendments provide relaxation of acceptance of funds by start-up companies, thereby, allowing them some more headroom to raise funds without attracting the provisions of Deposit Rules and the compliance thereunder.
Let’s talk
For a deeper discussion of how this issue might affect your business, please contact your local PwC advisor.
1 Notification No. G.S.R. 548(E) dated 7 September 2020
2 Notification No. G.S.R. 127(E) dated 19 February 2019
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