“In June 2015, 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,” says Anita P Basrur, partner, Sudit K Parekh & Co, a firm of chartered accountants. “In the initial stages, debt finance is hard to come by, especially as startups are low on collateral offering. Enabling shareholders to lend was a useful move, the newly announced procedural relaxation will be more helpful,” adds Basrur.
Other compliance relaxations, announced by the MCA in its notification dated June 13, include exemption from preparing and including cash flow statements with annual accounts. In the absence of a company secretary, a director of a startup is permitted to sign annual returns that are to be filed with the registrar of companies.
“Exempting startups from the requirement of preparing cash flow statements, may seem a move towards non-transparency. However nothing debars potential investors (such as VCs) from requesting that these statements be prepared,” says Basrur.