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Doors have been opened for Start Up Companies to accept deposits from any person

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Yesterday, Ministry of Company affairs has opened doors for start ups to accept deposits from any person, by inserting following clause xvii to rule 2 of Companies (Acceptance of Deposits) Rules, 2014.

“An amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person”

For the purpose of this clause, a Company shall be considered as start up company, if it is a Private Limited Company registered under Companies Act, 2013 or Companies Act, 1956 up to five years from the date of its incorporation/ registration and if its turnover for any of the financial years has not exceeded Rs. 25 crore.

For the purpose of this clause, "convertible note' means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.

Now a Start Up falling within this clause, can accept deposit of 25 lakhs or more from any person in the form of convertible note which should be repaid within five years from the date of its issue or should be converted in to equity shares of the company at the option of holder of such note.

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Guest Monday, 25 January 2021