The Ministry of Corporate affairs (MCA) in consultation with the Reserve Bank of India (RBI) has issued a notification dated September 07, 2020, amending the Companies (Acceptance of Deposit) Rules, 2014 [1], in order to provide more flexibility to Start-Ups to raise funds, especially during the pandemic.
Also read Start-Up Funding in India
Key Highlights of Companies (Acceptance of Deposits) Amendment Rules, 2020
1).MCA amended the Companies (Acceptance of Deposits) Rules, 2014 to enable start-ups to raise funds through corporate bonds or other convertible instruments for “ten years”, as against the stipulated period of “five years” earlier;
2). Changes made in period of repayments: The period of repayment has also been changed from “five years” to “ten years”.
Rule 2(1) (c) (xvii) has been amended. Prior to amendment, Start-Ups could receive funding of up to INR 25 Lakh by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person. However, post the notified amendment, the period of repayment by Strat-Ups has been increased to “ten years” from the date of issue.
The amendment easing out deposit and repayment rules by Start-Ups is a welcome move. It comes as a sigh of relief for already distressed Start-Ups in India. The economic distress and slowdown caused by the COVID-19 outbreak have severely impaired the Start-Ups. To revive the economy, the Government has been announcing relief measures and the present move would certainly help in creating a conducive environment for Start-Ups and businesses to thrive in India.
Also read Impact of COVID-19 on Start-Ups
[1] http://www.mca.gov.in/Ministry/pdf/Rule_08092020.pdf.