Following the mention of startup friendly measures in its Sixth Bi-monthly Monetary Policy for the year 2015-16, Reserve Bank of India has clarified that the relaxations available to other businesses are applicable to startups as well. Following are the clarifications brought about by the RBI pursuant to the said monetary policy.
A. Acceptance of payments
An Indian Start-up having an overseas subsidiary is allowed to open and maintain foreign currency account abroad to collect and pool foreign currency earning against exports/ sales. The balances in this foreign currency account should be repatriated to India within the prescribed time limits of realisation of export dues. Start-ups are also permitted to use Online Payments Gateway Service Providers (OPGSPs) for realization of overseas payments against export/sales with a maximum limit of USD 10000. A contractual arrangement to facilitate above transaction should be in place between Indian Start-up, its overseas subsidiary and customer.
B. Issue of shares against legitimate payment owed
Under existing FEMA/ FDI guidelines, an Indian Company can issue shares against any legitimate payments owed by the Company for which no prior permission is required from RBI/ Government for making payments. Thus, Indian Starts-up can also issue shares against such legitimate payments due to overseas suppliers/ customer such as
without any prior permission subject to tax withholding provisions as per Income Tax Act, 1961 and conditions relating to adherence with FDI policy
C. Issue of sweat equity for consideration other than cash
Indian Start-ups can issue sweat equity as allowed by Reserve Bank of India vide Notification No. FEMA. 344/2015 RB dated June 11, 2015. The said notification permits Indian companies to issue “sweat equity shares” to the following, who are resident outside India
Such issue, however, will be subject to conditions, inter-alia, that the scheme has been drawn either in terms of regulations issued under the Securities Exchange Board of India Act, 1992 in respect of listed companies or the Companies (Share Capital and Debentures) Rules, 2014 in respect of other companies and subject to sectoral caps.
(Author can be reached at Pri.firstname.lastname@example.org)