Lok Sabha Question No. 1002 (UNSTARRED), answered on 2016-04-29
Subject: Startup Companies
Ministry: FINANCE
Asked by: P.P. CHAUDHARY, CHANDRA PRAKASH JOSHI, (ADV.) JOICE GEORGE, GAJENDRA SINGH SHEKHAWAT

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 1002 TO BE ANSWERED ON 29TH APRIL, 2016

## STARTUP COMPANIES

## QUESTION

1002.  SHRI PP: CHAUDHARY: SHRI CHANDRA PRAKASH JOSHI: ADV. JOICE GEORGE: SHRI GAJENDRA SINGH SHEKHA WAT:

Will the Minister of FINANCE be pleased to state:

- a) whether a number of companies have received capital through private placements and stake startup sales;
2. the details f such transactions over the last three years;
3. (d) whether there is & system for regulation of such startup companies to protect investors and the capital raising and ensuring prudent valuations of public;
4. whether such transactions have taken place at high valuations;
5. (e) the details thereof; and if so,
6. (f)  ifnot; the reasons and implications thereof?

## MINISTER OF STATE INTHE MINISTRY OF FINANCE (SHRI JAYANT SINHA)

## ANSWER

(a): companies are neither defined under the SEBI (Issue of Capital and Disclosure Regulations, 2009 ("ICDR Regulations' nor in the Companies Act, 2013. Requirements India has announced Startup India' initiative for creating However; the Government of The Ministry of Commerce and Industry conducive environment for startups in India: (Department of Industrial Policy and Promotion) vide notification 2016 has notified that an shall be considered a "start-up Annexure-A. as given in Startup entity

- (b) & (c): The information sought is not maintained.
- (d) (e) & (f: Private placement by unlisted companies is not covered under the ICDR is applicable for equity shares and convertible securities Regulations which provides   for  provision Chapter III and IV of the Companies Act; 2013 Prospectus   and  Allotment of Securities & Share Capital' and Debentures respectively. Part I (Section 23 to 41) of Chapter III deals with Public Offer Chapter III deals with Private Placement. and Part II (section 42) of

The   provisions of   Section  42 of the  Companies 2013 dealing   with applicable to all the companies. Section 62 of the Companies private   placement are are applicable when a Act; 2013 provide for the requirements which with Section 42 company issues further shares. Section 62(1)(c) and rules made thereunder read of the Act require the valuation of shares in case the shares are offered persons other than existing member or employee of the by a company to company\_ Act;

The requirement under Section 62(1) (c) and Section 42 read with relevant adequate disclosures and valuation requirement; These rules provides for the public. are aimed at protecting the interest of investors and making

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## ANNEXURE-A

To uniformity in the identified enterprises; an entity shall be considered as & startup bring

- a) Up to five years from the date of its incorporation/registration,
- b) Ifits turnover for any of the financial years has not exceeded Rupees 25 and crore;
- c) It is processes Or services driven by technology intellectual of new products, property;

Provided that anysuch entity  formed by splitting up or reconstruction of a business already existence shall not be considered a 'startup' in

Provided further that in order to obtain tax benefits a startup s0 identified under the shall be required to obtain a certificate of an eligible business from above definition Certification consisting of: the Inter-Ministerial Board of

- a) Joint Secretary, Department of Industrial and Promotion, Policy
- b) Representative of Department of Science and Technology, and
- c) Representative of Department of Biotechnology:

## Explanation:

1. An shall cease t0 be a on completion of five years from the date of its incorporation/registration or ifits turnover for any previous year exceeds Rupees 25 crore. entity startup
2. 2 means a private limited company (as defined in the Companies Act 2013), partnership  firm (registered   under section 59 of the Partnership registered 1932) a limited  liability partnership (under the Limited Liability Partnership Act; 2002). Entity Act;
3. Turnover is as defined under the Companies Act; 2013.
4. 4 An   entity is considered to be towards   innovation, commercialization of new products, processes or services driven development; deployment or ifit aims to develop and commercialize: by technology or intellectual property working
5. a A new product or service or process, or
6. b\_ A significantly improved product or service or process that will create or add value for customers or workflow. existing

Provided that the mere act of developing:

- a. products or services or processes which do not have potential for commercialization, or
- b. undifferentiated products or services Or processes, Or
- C. products Or services or processes with no or limited incremental value for would not be covered under this definition. customers or workflow