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RBI ’s New Regulations For Startups To Raise Foreign Funding

Reserve-Bank-of-India

Two weeks after the launch of Startup India action plan, RBI has highlighted the regulations in keeping with the Government’s initiatives to promote the ease of doing business and contribute to an entrepreneurship conducive ecosystem.

The statement issued by RBI

These measures are aimed at creating an enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and simplification of documentation and reporting procedures.

Following Regulatory changes has been announced by RBI for foreign exchange of transactions for ease of doing business in 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;
  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; and
  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.

Apart from the above mentioned, following proposals are under consideration:

  1. Permitting start-up enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders, etc.;
  2. Issuance of innovative FDI instruments like convertible notes by start-up enterprises; and
  3. Streamlining of overseas investment operations for the start-up enterprises.

With aim to provide assistance and guidance to the start-up sector The Reserve Bank has also created a dedicated mailbox (helpstartup@rbi.org.in)

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.

With above initiatives and Startup India action plan evidently reveals the strong will and vision of Indian Government to boost up the startup culture and entrepreneurship in India and that definitely is very good news for Entrepreneurs and entrepreneurship lovers like us!! 🙂

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