MCA India Gets “Startups” Recognised Legally Under the Companies Act

June 28, 20178:02 am659 views

In its moves to boost the startup ecosystem in the country, Ministry of Corporate Affairs (MCA) India in its latest efforts gives a leg-up to boost startups by helping them get recognized legally under the Companies Act.

For the first-time ever, the concept a startup has been introduced by MCA legally under the Companies Act 2013. Besides defining start-up under the executive order, MCA has also given few operational and compliance relaxations for a “start-up company.” This means a start-up gets recognized in accordance with the notification issued by the Department of Industrial Policy and Promotion (DIPP).

The relaxations allow start-ups to raise deposits from members (shareholders), with exemption from procedural compliance for five years. Since the relaxation has been offered on the board meeting front, a company secretary of a start-up or a director can now sign the annual return without the need to prepare cash flow statements.

“This MCA move is a positive development, though there may be no tangible impact. It is going to give a psychological comfort and boost to start-ups in the country,” Nirav Maniar, Partner and Head – Corporate Legal and Information Technology at International Business Advisors was quoted by The Hindu.

See: Government of India Expands Startup Benefit Provisions Now to 7 Years

“There is clear realisation on part of the government that this (start-ups) is where growth is. This could also be seen as the first of the several steps that is on the anvil for developing the start-up ecosystem.”

While RBI on one hand, has already been covering the aspect of start-ups in its circulars for FEMA-related notifications, Maniar believes real help could come to start-ups only if Government could set a threshold for compliances for startups in specifics.

The Start-up India Action plan, launched back in January 2016 incorporates the DIPP’s rules regarding such companies. In line with its focus on ease of doing business, the norms allow for easy incorporation and dissolution of start-ups.

In one of the earlier reports, DIPP has written to the MCA requesting start-ups to be notified as “fast-track firms.” This will further allow start-ups to wind up their business within 90 days of applying to do so. Expediting the process of winding up in India, would require notification under section 304-323 of the Companies Act, 2013 as regards voluntary winding-up of operations.

Further the benefits of voluntarily winding up a start-up if business doesn’t pick up traction within the specified time frame, would involve no court supervision.

Also read: Facebook Launches New Initiative to Support Women Founded Start-ups in India: SheLeadsTech

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