MCA Offers Sweat Equity, Regulatory Filings Exemptions To Boost Startup Registration

With an aim to boost the Indian startup ecosystem, the government has proposed to issue sweat equity to startups alongside granting additional exemptions under the norms laid out in the Companies Act, 2013. 

Reportedly, the Ministry of Corporate Affairs (MCA) is now seeking to grant 50% of paid-up capital of the startups as sweat equity. Moreover, the ministry is also planning to extend the period of exemptions to submit other regulatory filings to 10 years. Currently, the startups enjoy this exemption up to five years only.

Sweat equity is equity given to employees or promoters for their non-monetary investment such as time and work for the company.  

Earlier this year, DPIIT had stated that the startups will continue to be considered as startups until a period of 10 years since their incorporation. 

The official added that any relaxation of norms on financial filings for startups would require an amendment to the Companies Act, which could involve further approvals. 

Moreover, other provisions such as exemption from filing cash flow statements in their annual filings and increasing the maximum time for conducting one board meeting from every four months to six months might require parliamentary approval. 

The report added that the extensions would provide startups with operational and financial flexibility, along with a reduction in time and costs incurred in government compliances. 

Government Making Life Easier For Startups?

The Indian government has taken several initiatives to provide additional wings to its Startup India Mission. Recently, the government further cleared the air around angel tax, which is levied when startups receive investments at a higher value than their fair market price. 

Last month, DPIIT also announced that it is going to approach the central government cabinet to seek approval for the implementation of a comprehensive vision document to further promote startups in India. 

The document proposed a series of steps such as simplification of regulatory measures such as reducing tax compliance time to an hour per month and debt financing facilities.

Additionally, DPIIT’s other proposals include setting up of 500 new accelerators and incubators and building innovation zones in urban local bodies. Moreover, the department also plans to deploy the entire corpus of INR 10K Cr fund dedicated to Startup India, operationalise credit guarantee scheme, and establishment of a new seed fund.