Lok Sabha Question No. 1257 (UNSTARRED), answered on 2024-12-03
Subject: Measures to Discourage Start-up Flipping
Ministry: COMMERCE AND INDUSTRY
Asked by: Shri Sribharat Mathukumilli

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

UNSTARRED QUESTION NO. 1257.

TO BE ANSWERED ON TUESDAY, THE 03 RD  DECEMBER, 2024.

## MEASURES TO DISCOURAGE START-UP FLIPPING

## 1257.  SHRI SRIBHARAT MATHUKUMILLI:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state: वाणिज्य एवं उद्योग मंत्री

- (a) the details and number of start-ups registered across the country during the last five years, including State/UT-wise data during the years 2019 to 2024;
- (b) the details of number of start-ups that have relocated to other countries during the last five years including the current year, State/UT-wise;
- (c) the details of measures implemented to discourage start-ups from relocating to other countries, along with the number of start-ups that have returned due to these efforts;
- (d) the  details  of  major  reasons  expressed  by  start-ups  for  relocating  to  other countries; and
- (e) the details of specific sectors or industries in start-up flipping is more prevalent and trends observed during the last five years including the current year?

## ANSWER

## वाणिज्य एवं उद्योग मंत्रालय में राज्य मंत्री ( श्री णिणिन प्रसाद ) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI JITIN PRASADA)

- (a): The Government, with an intent to build a strong ecosystem for nurturing innovation, startups and encouraging private investments in startup ecosystem of the country launched Startup India initiative on 16th January 2016.

As  per  eligibility  conditions  prescribed  under  G.S.R.  notification  127  (E) dated 19th February 2019, entities are recognized as 'startups' under the Startup  India  initiative  by  the  Department  for  Promotion  of  Industry  and Internal Trade (DPIIT). As on 31st October 2024, 152,139 entities have been recognised as startups by DPIIT.

The State/Union Territory(UT)-wise details of DPIIT recognised startups in the last five years and the current year viz. 2019, 2020, 2021, 2022, 2023 and 2024 as on 31 st  October 2024 are placed as Annexure-I.

- (b): Such information is not centrally maintained by the Government.

| (c) to (e):   | Conduciveness of doing business, ability to attract funding, and other business specific factors play important role for startups to stay domiciled in their home country. Since the launch of the Startup India initiative in 2016, the Government has taken various measures to enhance ease of doing business, raising capital, and reducing compliance burden to simplify the regulatory environment and create a conducive business environment.                                                                                                                                                                                                                                                 |
|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               | Specifically for re-domiciling (reverse flipping) of emerging companies, such measures include recent announcement of abolishment of the Angel Tax for all classes of investors, boosting in-bound investments in the country. The Government has also introduced harmonization of long-term capital gains (LTCG) tax across various securities, to simplify the tax regime.                                                                                                                                                                                                                                                                                                                          |
|               | Further, amendment has been made in Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 , to simplify the in-bound cross-border merger process and make the process of merger of a holding company incorporated outside the country with its wholly owned Indian subsidiary faster.                                                                                                                                                                                                                                                                                                                                                                                   |
|               | Also, with respect to onshoring (bringing back) of Indian startups, the Government has notified the International Financial Services Centres Authority (IFSCA) to develop and regulate financial services, financial institutions and financial products in the International Financial Services Centre (IFSC). The mandate of IFSCA is to create a world class international financial center to enable onshoring of the activities that are currently carried out in offshore financial centres by Indian corporate entities. Through such measures, the IFSCA is actively engaged in promoting onshoring of Indian innovation i.e., redomiciling Indian startups currently domiciled abroad to the |
|               | The Ministry of Corporate Affairs has undertaken specific measures for startups to start and do business in the country. A list of such specific key reforms undertaken is placed as Annexure-II.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

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ANNEXURE-I

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART  (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 1257 FOR ANSWER ON 03.12.2024.

The State/UT-wise details of entities recognised as startups by DPIIT in the last five years and the current year viz. 2019, 2020, 2021, 2022, 2023 and 2024 as on 31 st October 2024 are as under:

| State                                    | 2019   | 2020   | 2021   | 2022   | 2023   | 2024 (as on 31st October 2024)   |
|------------------------------------------|--------|--------|--------|--------|--------|----------------------------------|
| Andaman and Nicobar Islands              | 8      | 5      | 13     | 10     | 13     | 16                               |
| Andhra Pradesh                           | 179    | 235    | 298    | 381    | 586    | 499                              |
| Arunachal Pradesh                        | 2      | 0      | 4      | 9      | 17     | 10                               |
| Assam                                    | 71     | 119    | 190    | 285    | 362    | 294                              |
| Bihar                                    | 158    | 265    | 390    | 525    | 812    | 707                              |
| Chandigarh                               | 41     | 55     | 69     | 81     | 126    | 91                               |
| Chhattisgarh                             | 166    | 155    | 167    | 237    | 362    | 403                              |
| Dadra and Nagar Haveli and Daman and Diu | 3      | 5      | 12     | 12     | 11     | 12                               |
| Delhi                                    | 1,450  | 1,817  | 2,215  | 2,580  | 3,161  | 2,416                            |
| Goa                                      | 43     | 67     | 81     | 107    | 98     | 100                              |
| Gujarat                                  | 644    | 881    | 1,728  | 2,282  | 3,295  | 2,931                            |
| Haryana                                  | 730    | 830    | 1,070  | 1,334  | 1,742  | 1,470                            |
| Himachal Pradesh                         | 31     | 41     | 56     | 120    | 144    | 125                              |
| Jammu and Kashmir                        | 38     | 64     | 131    | 170    | 246    | 229                              |
| Jharkhand                                | 89     | 165    | 191    | 239    | 337    | 279                              |
| Karnataka                                | 1,746  | 1,776  | 2,157  | 2,568  | 3,036  | 2,641                            |
| Kerala                                   | 669    | 710    | 923    | 1,078  | 1,296  | 967                              |
| Ladakh                                   | 0      | 1      | 1      | 5      | 5      | 5                                |
| Lakshadweep                              | 0      | 1      | 0      | 0      | 2      | 0                                |
| Madhya Pradesh                           | 335    | 427    | 562    | 898    | 1,267  | 1,013                            |
| Maharashtra                              | 2,227  | 2,736  | 3,737  | 4,812  | 5,816  | 4,825                            |
| Manipur                                  | 6      | 13     | 37     | 31     | 26     | 40                               |
| Meghalaya                                | 6      | 0      | 9      | 10     | 18     | 13                               |
| Mizoram                                  | 1      | 1      | 2      | 6      | 13     | 15                               |
| Nagaland                                 | 2      | 5      | 7      | 7      | 22     | 30                               |
| Odisha                                   | 187    | 280    | 397    | 451    | 620    | 448                              |
| Puducherry                               | 11     | 14     | 17     | 30     | 43     | 26                               |
| Punjab                                   | 99     | 146    | 244    | 294    | 443    | 338                              |
| Rajasthan                                | 358    | 503    | 623    | 992    | 1,445  | 1,074                            |
| Sikkim                                   | 2      | 1      | 3      | 2      | 2      | 0                                |
| Tamil Nadu                               | 632    | 772    | 1,107  | 1,811  | 2,816  | 2,132                            |
| Telangana                                | 620    | 819    | 994    | 1,381  | 1,760  | 1,484                            |
| Tripura                                  | 7      | 23     | 12     | 27     | 23     | 37                               |
| Uttar Pradesh                            | 906    | 1,401  | 1,981  | 2,583  | 3,432  | 2,896                            |
| Uttarakhand                              | 98     | 114    | 162    | 236    | 271    | 218                              |
| West Bengal                              | 320    | 405    | 692    | 1,002  | 1,174  | 943                              |
| Grand Total                              | 11,885 | 14,852 | 20,282 | 26,596 | 34,842 | 28,727                           |

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## ANNEXURE REFERRED TO IN REPLY TO PARTS (c) to (e) OF THE LOK SABHA UNSTARRED QUESTION NO. 1257 FOR ANSWER ON 03.12.2024.

List of key reforms undertaken by the Ministry of Corporate Affairs:

- i. Differential voting Rights (DVRs): Startups being private limited companies are free  to  issue  equity  shares  with  DVRs  to  raise  capital  without  any  restrictions contained in rule 4 of Companies (Share Capital and Debentures) Rules, 2014 as Private limited companies are exempted from application of section 43 and 47 of the Companies Act, 2013 (vide notification no. 464(E) dated 05.06.2015).
- ii. Deposits: Companies  may  ordinarily  accept  or  renew  any  deposits  from  its members  not  exceeding  35%  of  the  paid-up  share  capital,  free  reserves  and securities  premium  account  of  the  company.  But  a  startup  may  accept  deposits without  any  limit  from  its  members  for  the  period  of  ten  years  from  the  date  of incorporation (Second proviso to sub-rule (3) of rule 3 of Companies (Acceptance of Deposits) Rules, 2014 .
- iii. Convertible Note: Startups can receive an amount of Rs 25 lakh or more by way of a convertible note (convertible into equity shares or repayable within a period not exceeding ten years from the date of issue) in a single tranche, from a person, and such transactions are not considered deposit under Deposit Rules. (Rule 2(1)(c)(xvii) of the Companies (Acceptance of Deposits) Rules, 2014).
- iv. Sweat Equity: Unlisted companies may issue sweat equity shares to the extent of 25% of the paid-up capital at any time, with other restrictions. But a startup company may issue sweat equity shares not exceeding 50% of the paid up capital upto ten years from the date of its incorporation or registration (Second Proviso to sub-rule(4) of rule 8 of Companies (Share Capital and Debenture) Rules, 2014).
- v. Employee  Stock  Options  (ESOPs): In  general,  ESOPs  are  not  given  to  the employee who is a promoter or a person belonging to the promoter group and a director  who  either  himself  or  through  his  relative  or  through  anybody  corporate, directly or indirectly, holds more than 10% of the equity of the company. But in case of  a  startup  such  condition  shall  not  apply  up  to  ten  years  from  the  date  of incorporation  (Rule12(1)(c)  of  Companies  (Share  Capital  and  Debenture)  Rules, 2014).
- vi. Cash Flow Statement: A private company which is a startup /small companies are not required to include cash flow statement with financial statements which otherwise is a mandatory requirement under section 2(40) of Companies Act, 2013.
- vii. Signing  of  annual  return: In  case  of  startup  companies/small  companies,  the annual  return  shall  be  signed  by  the  company  secretary  or  where  there  is  no company secretary, by the director of the company. (Notification no. 583(E) dated 13.06.2017).
- viii. Number of Board Meetings: Under Companies Act, 2013, Board of Directors of a company are required to meet at least once in 120 days, 4 board meetings in a year. However, in case of a startup companies/small companies one board meeting in each half of a calendar year with a gap between two meetings of not less than 90 days is sufficient to comply with the requirement of section 173(5) of the Companies Act. (Notification no. 583(E) dated 13.06.2017).
- ix. The Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024  have  been  issued  vide  notification  dated  24.01.2024.  Through  this  policy initiative Indian public companies have been allowed to list their equity shares on the international stock exchanges at GIFT IFSC. This enables Indian public companies, especially startups and companies in the sunrise and technology sectors, to use this alternative avenue to access global capital beyond the domestic exchanges. This is expected to lead to better valuation of Indian companies in line with global standards of scale and performance, boost foreign investment flows, unlock growth opportunities and broaden the investor base. The public Indian companies will have the flexibility to access both markets i.e., domestic market for raising capital in INR and the international market at IFSC for raising capital in foreign currency from the global investors .
- x. Amendment  has  been  made  in  rule  25A  of  the  Companies  (Compromises, Arrangements and Amalgamations) Rules, 2016 on 09.09.2024 (effective from 17.09.2024). Pursuant to this amendment, merger of a holding company incorporated abroad with its wholly owned subsidiary incorporated in India would require approval of Central Government (delegated to Regional Directors). Prior to this  amendment,  such  mergers  required  approval  of  the  National  Company  Law Tribunal (NCLT). This would make this process speedier and would allow NCLT to concentrate on other areas.

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