India’s Securities and Exchange Board of India (SEBI) has proposed a framework for accreditation of investors who want to invest in startups that would be listed on the Innovators Growth Platform.
The IGP platform, earlier Institutional Trading Platform, was put in place in 2015 based on the amendment to the SEBI Regulations (Issue of Capital and Disclosure Requirements), 2009, to facilitate listing of new age startups. ITP was refurbished to IGP in September along with proposed changes in policy in the startup listing eligibility, among others.
In a circular dated May 22, SEBI has now provided framework for accreditation of investors. This includes eligibility criteria and procedures to be recognised as an accredited investor and also mentioned the validity of accreditation. Here’s a brief of proposed framework:
- Any individual with a total gross income of INR 50 lakh annually and who has a minimum liquid net worth of INR 5 Cr or any corporate with net worth of INR 25 Cr is eligible to be an accredited investor
- Investors having a demat account with a depository needs to make an application to the exchanges or depositories in the prescribed manner for recognition as an accredited investor
- Exchanges and depositories shall be responsible for verification and maintenance of the accredit investors data
- Accreditation shall be valid for three years from the date of issuance unless the accredited investor becomes ineligible due to change in its financial status
- In such cases, the accredited investor needs to inform about its ineligibility to the exchange or depository
- The merchant bankers shall ensure due diligence with regard to eligibility of accredited investors at the time of application by a company for listing on IGP
- They will also ensure that their holding in the company desirous of listing on the platform is in accordance with the Issue of Capital and Disclosure Requirements norms
- The Exchanges / Depositories have been directed to implement the procedure for accreditation within 45 days from the date of issue of the circular
Earlier, DPIIT was reportedly exploring a definition of ‘accredited investors’, who could be provided tax incentives for investments in startups. The accredited investor is being created as a new definition to include trusts, individuals, the family member of a startup and unlisted companies, and hence, enable them to get exemption from angel tax under Section 56(2)(viib) of the Income Tax Act, 1961, beyond the INR 25 Cr limit.
SEBI’s accreditation framework for investors solely focuses on those listed on Innovators Growth Platform and therefore, narrows down the impact it could have. However, this could be promising and a bigger attraction to involve startups with the public markets.