Recent regulatory measures to boost Start-up India plan

In its endeavour to promote an effective eco-system for startups in India, the government in January 2016 came up with the Start-up India Action Plan under the aegis of the Start-up India initiative. The action plan highlights several measures that the government intends to undertake for startups. In keeping with the plan, the government in the past year has introduced a slew of regulatory measures to benefit startups.

For instance, the Reserve Bank of India (RBI) has recently allowed startups (being private companies) to issue convertible notes worth ₹2.5 million (US$38,000) or more to non-residents in a single tranche. A convertible note is a hybrid instrument expressed as debt repayable at the option of the holder or convertible into equity shares, within a period not exceeding five years from the date of issue of the note, upon occurrence of specified events as per mutually agreed terms.

This is a significant measure as it may provide startups with an additional funding option, while giving foreign investors a chance to stipulate that the investee company meet pre-defined performance parameters as a condition for conversion of the note into equity shares, failure of which could trigger repayment obligations.

Kanchan Sinha is a partner and Gagan Ahuja is a senior associate at Luthra & Luthra Law Offices. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.