RBI's Regulatory Relaxations for Start-up

The Reserve Bank of India (RBI) has vide its sixth bi-monthly Monetary Policy Statement, 2015-16 on February 02, 2016 with reference to the Government's Start-up India initiative decided to take steps to ease the doing of business in India. A detailed statement has been issued separately by the RBI vide press release dated 2 February 2016.

The following regulatory changes for easing the cross-border transactions, particularly relating to the operations of the start-up enterprises are proposed to be made, in consultation with the Government of India:

1. Enabling start-up enterprises, irrespective of the sector in which they are engaged, to receive foreign venture capital investment and also explicitly enabling transfer of shares from Foreign Venture Capital Investors to other residents or non-residents investors;
2. Permitting, in case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months;
3. Enabling online submission of A2 forms for outward remittances on the basis of the form alone or with document(s) upload/submission, depending on the nature of remittance;
4. Simplifying the process for dealing with delayed reporting of Foreign Direct Investment (FDI) related transaction by building a penalty structure into the regulations itself.
5. Permitting start-up enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders, etc.;
6. Issuance of innovative FDI instruments like convertible notes by start-up enterprises; and
7. Streamlining of overseas investment operations for the start-up enterprises

The notications/circulars under Foreign Exchange Management Act (FEMA), wherever necessary, will be issued shortly.

Certain other issues that are permissible under the existing regime shall be claried

1. Issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company remittance of which does not require any permission under FEMA; and
2. Collection of payments by start-up enterprises on behalf of their subsidiaries abroad

Further, electronic reporting of investment and subsequent transactions will be made on e-Biz platform only. 

Submission of physical forms will be discontinued with effect from February 8, 2016.