Relaxation of deposit norms a very positive move for start-ups: Expert

New Delhi, July 1 (KNN) The Corporate Affairs Ministry through a notification on Thursday, has   reportedly exempted any advance of more than Rs 25 lakh to a start-up from being treated as a deposit, provided that the person giving the money does it in the form of convertible note. The recent news has been graciously welcomed by the start-ups and is regarded as a very positive move by the entrepreneurs.

Prior to this particular exemption, as per the Companies Act 2013, any company including start-ups that received money from any person for over 365 days, was considered as a deposit. Thus, being given the status of a deposit the start-ups had to follow the stringent acceptance of deposit rules to keep that deposit.

Now the recent relaxation which has been made only for the companies that could be defined as start-ups under the notification issued by DIPP (Department of Industrial Policy and Promotion) gives them a government nod to freely raise money without the burden of a huge lot of compliances.

The compliances like informing the registrar, maintaining the deposit repayment reserve and getting credit rating before raising the money from over 365 days many a times makes it difficult for start-ups  to raise money.

The corporate affairs ministry has also increased the tenure of the convertible debentures from five to 10 years and has also exempted money raised through unsecured NCB’s. All these relaxation have made start-ups turn more optimistic.

Talking to KNN, Charu Dutt Sharma, Partner at SME Business Outsourcing & Training Solutions LLP (SME BOTS), said, “It is a very dynamic change for the start-up world which were earlier subjected to very stringent rules even for accepting  the nominal deposits”.

“Start-ups which are currently feeling a lot of pinch as far as raising money is concerned. So, this is a welcome effort and will go a long way in terms of attracting more investments and funds,” he added.

“Though  stringent regulations are akin to upholding depositor’s confidence and ensuring that  their deposits are handled safely such a move could also be  complemented by  minimum support mechanism and due diligence on the start-ups so that the promising  VC (Venture Capital) channels  have their confidence well in place,” Sharma opined. (KNN/ GK)