Article explains FDI IN STARTUP COMPANIES. It explains General Meaning of Start-up, Legal Meaning of Start-up, Types of Instruments Issued by Start-ups, Convertible Note which can be issued by a start-up. Article further explains conditions to comply for Issue Of Convertible Notes To Person Resident Outside India, Eligible Person For Making Investments In Convertible Notes Of Start-ups, Whether NRI can invest in  Convertible Notes , Whether NRI can invest in  Convertible Notes, Acquisition And Transfer Of Convertible Notes and Furnishing Of Reports By start-up Companies.

FDI in Startup Companies

General Meaning Of Startup A Startup company, or simply a startup, is an entrepreneurial venture in its early stages of operations typically aimed at resolving a real life issue with an innovative product or service
Legal Meaning Of Startup Startup Company’ means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with notification issued by the Department of Industrial Policy and Promotion (Now, Department for Promotion of Industry and Internal Trade), Ministry of Commerce and Industry, and as amended from time to time 
Types Of Instruments Issued By Startups 1. Equity

2. Equity linked instruments

3. Debt instruments

4. Convertible Notes*

*it shall be issued subject to Following conditions.

Convertible Note An instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument

Conditions to comply for Issue Of Convertible Notes To Person Resident Outside India

Eligible Person For Making Investments In Convertible Notes Of Startups A person resident outside India


Individual who is citizen of Pakistan or Bangladesh or an entity which is registered/incorporated in Pakistan or Bangladesh)

Amount of Investment:

Rupees 25 Lakh or more in a single tranche

How Investment Amount shall be received:

Amount of consideration by inward remittance through banking channels or by debit to the NRE / FCNR (B) / Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016, as amended from time to time

Escrow Account for above purpose, it shall be closed immediately after the requirements are completed or within a period of six months, whichever is earlier.

In No case continuance of such escrow account shall be permitted beyond a period of six months.

Approval Of Government A startup company engaged in a sector where foreign investment requires Government approval may issue convertible notes to a non-resident only with approval of the Government.
Whether Nri Made An Investments In Startups ( Acquire Convertible Notes) Yes, NRIs may acquire convertible notes on non-repatriation basis
Acquisition And Transfer Of Convertible Notes A person resident outside India may acquire or transfer, by way of sale, convertible notes, from or to, a person resident in or outside India

Provided the transfer takes place in accordance with the pricing guidelines as prescribed by RBI.

Prior approval from the Government shall be obtained for such transfers in case the startup company is engaged in a sector which requires Government approval

Furnishing Of Reports By Startup Companies The startup company issuing convertible notes shall be required to furnish reports as prescribed by Reserve Bank of India.

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February 2024