Start-up biz made easier through MCA compliance relaxations

Start-up biz made easier through MCA compliance relaxations

Posted by P. Charitha on June 19th 2017

Times of India Report: The Ministry of Corporate Affairs (MCA) has notified a slew of operational and compliance relaxations which could help ease of doing business for start-ups. 
  • Key among them is the ability to raise deposits from members, with exemption from procedural compliance for an extended period of five years.
  • The MCA had enabled all private companies (which would include startups) to obtain deposits from their shareholders to the extent of 100% of their paid-up share capital and free reserves.Such companies were exempt from procedural requirements such as issue of an offer circular or creation of a deposit repayment reserve. 
  • Startups have now been specifically included for exemption from such procedural requirements for an extended period of five years from the date of their incorporation. Enabling shareholders to lend was a useful move, the newly announced procedural relaxation will be more helpful for start-ups.
  • Exemption from preparing and including cash flow statements with annual accounts. In the absence of a company secretary, a director of a start-up is permitted to sign annual returns that are to be filed with the registrar of companies.
  • Instead of holding a board meeting every quarter, startups are deemed as compliant with the Companies Act, if they hold a meeting once in six months. The only caveat is that the gap between two board meetings shall be at least 90 days. 
  • Further, the quorum for a board meeting is two. The MCA has notified that interested directors will also be counted towards the quorum provided they disclose their interest in the proposed transaction. Given the small size of the board of directors in a startup, which could even be two, this is a practical step say experts.
  • Start-up, according to MCA’s notification, denotes an entity recognised as such by the DIPP’s notification. It can be a private company, firm or LLP, which has not completed seven years from incorporation (10 for biotech sector), is innovative or has a scaleable business model. Further, its turnover for any of the financial years since incorporation should not be more than Rs 25 crore.
  • Since hundreds of startups go bust each year, the MCA has also notified sections 55 to 58 of the Insolvency and Bankruptcy Code, 2016, pertaining to the fast-track process and held that it would apply to a startup (which is not a partnership firm). The entire process from initiation of the insolvency resolution till approval of the resolution plan by the adjudicating authority shall be completed in 90 days as opposed to 180 days.


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