Start-up initiatives by RBI

Background: The Startup boom has continued in India with more rigour than ever before. Hence to promote ease of doing business and contribute to an eco-system conducive for growth of entrepreneurship, particularly in respect of the start-up enterprises, RBI Governer Dr. Raghuram Rajan, in the Sixth Bi-monthly Monetary Policy Statement, 2015-16 dated 2nd February, 2016 has highlighted the steps being taken, steps proposed to be taken and proposed steps already under consideration with respect to the Government’s initiatives. This article will provide a detailed view of all such steps highlighted in the Sixth Bi-monthly Monetary Policy Statement, 2015-16.

Through A.P. (DIR Series) Circular No. 50 dated 11th February, 2016, the RBI, with a view to facilitating miscellaneous remittances and reducing paperwork associated with payment transactions, decided that Authorized Dealer banks (“AD Banks”), offering internet banking facilities to their customers may allow online submission of Form A2.
AD Banks may also enable uploading/submission of documents, to establish the permissibility of the remittances under the extant rules or regulations under the Foreign Exchange Management Act, 1999 (FEMA).
Remittances that do not require any documentation (e.g. certain transactions under the LRS) may be put through on the basis of the Form A2 alone.
Remittances on the basis of online submission alone will be available for transactions with an upper limit of
- USD 25,000 (or its equivalent) for individuals and
- USD 100,000 (or its equivalent) for corporates.
Remittances mentioned above will be subject to satisfaction of the AD banks.

Overseas Subsidiary of an Indian Start-up: Through A.P. (DIR Series) Circular No. 51 dated 11th February, 2016, the following points have been clarified with reference to the Sixth Bi-monthly Policy Statement 2015-2016:

A start-up in India with an overseas subsidiary is permitted to open foreign currency account abroad to pool the foreign exchange earnings out of the exports/sales made by the concerned start-up;
The overseas subsidiary of the start-up is also permitted to pool its receivables arising from the transactions with the residents in India as well as the transactions with the non-residents abroad into the said foreign currency account opened abroad in the name of the start-up;
The balances in the said foreign currency account as due to the Indian start-up should be repatriated to India within a period as applicable to realisation of export proceeds (currently nine months);
A start-up is also permitted to avail of the facility for realising the receivables of its overseas subsidiary or making the above repatriation through Online Payment Gateway Service Providers (OPGSPs) for value not exceeding USD 10,000 (US Dollar ten thousand) or up to such limit as may be permitted by the Reserve Bank of India from time to time under this facility; and
To facilitate the above arrangement, an appropriate contractual arrangement between the start-up, its overseas subsidiary and the customers concerned should be in place.

Issue of shares without cash payments: With reference to the Sixth Bi-monthly Policy Statement 2015-2016, RBI has further issued clarifications through A.P. (DIR Series) Circular No. 52 dated 11th February, 2016 on the following issues for start-ups:

Issue of shares through sweat equity: RBI, through Notification No. FEMA.344/2015 RB dated June 11, 2015 has permitted Indian companies to issue sweat equity, subject to conditions, 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
- Companies (Share Capital and Debentures) Rules, 2014 notified by the Central Government under the Companies Act 2013 in respect of other companies.
Issue of shares against legitimate payment owed
- RBI, through Notification No. FEMA.315/2014-RB dated July 10, 2014, has permitted Indian companies to issue equity shares against any other funds payable by the investee company, including but not limited to, payments for
  - use or acquisition of intellectual property rights,
  - import of goods,
  - dividends,
  - interest,
  - consultancy fees.
- Equity shares can be issued against payables only for remittances which do not require prior permission of the Government of India or RBI under FEMA, 1999.
- Also such issue of shares shall be subject to conditions relating to adherence to FDI policy including sectoral caps, pricing guidelines, etc. and applicable tax laws.

Proposals to be made: The RBI, through Press Release No. 2015-2016/1809 dated 2nd February, 2016 has made the following proposals for regulatory changes to ease the cross-border transactions, particularly relating to the operations of the start-up enterprises. Such proposals are to be made in consultation with the Government of India.
- 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;
- 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;
- Simplifying the process for dealing with delayed reporting of Foreign Direct Investment (FDI) related transaction by building a penalty structure into the regulations itself.
Proposals under consideration: The following proposals are under consideration, in consultation with the Government of India:
- Permitting start-up enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders, etc.;
- Issuance of innovative FDI instruments like convertible notes by start-up enterprises; and
- Streamlining of overseas investment operations for the start-up enterprises.

Dedicated helpline for start-ups: Through its Press Release No. 2015-2016/1476 dated 22nd December, 2015, the RBI has created a dedicated helpline- helpstartup@rbi.org.in for start-ups in India in order to offer guidance/assistance to them for undertaking cross-border transactions within the ambit of the regulatory framework.