Lok Sabha Question No. 5962 (UNSTARRED), answered on 2026-03-30
Subject: Regulatory Framework for Deep-Tech and Hardware Startups
Ministry: CORPORATE AFFAIRS
Asked by: Shri Konda Vishweshwar Reddy

## GOVERNMENT OF INDIA

## MINISTRY OF CORPORATE AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 5962 ANSWERED ON MONDAY, MARCH 30, 2026 CHAITRA 09, 1948 (SAKA)

## REGULATORY FRAMEWORK FOR DEEP-TECH AND HARDWARE STARTUPS QUESTION

5962. Shri Konda Vishweshwar Reddy:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

- (a) whether the Government has assessed the trend of Indian deep-tech and hardware startups "flipping" their holding structures to foreign jurisdictions due to rigid  domestic corporate compliance requirements for raising earlystage capital, if so, the details thereof;
- (b)  whether  there  is  any  proposal  to  relax  the  stringent  Private  Placement norms under Section 42 of the Companies Act, 2013, to ease the financial and administrative burden on DPIIT-recognized startups, if so, the details thereof;
- (c) whether the Government plans to amend the Companies (Acceptance of Deposits) Rules to extend the maximum maturity period of Convertible Notes beyond the current ten years to facilitate "patient capital", if so, the details thereof; and
- (d) whether a tailored corporate regulatory framework is being formulated by the Government  to  prevent  the  outward  migration  of  capital-intensive innovators,  particularly  from  rapidly  growing  deep-tech  and  aerospace corridors in States like Telangana, if so, the details thereof?

## ANSWER

THE  MINISTER  OF  STATE  IN  THE  MINISTRY  OF  CORPORATE  AFAIRS  AND MINISTER OF STATE IN THE MINISTRY OF ROAD, TRANSPORT AND HIGHWAYS [SHRI HARSH MALHOTRA]

- (a):  The  Government  has  been  taking  various  initiatives  including  through revision  in  legal  provision  and  compliance  framework  to  facilitate  ease  of doing business for startups including Deep-tech startups. No such trend due to provisions of the Companies Act, 2013 for raising capital has been noticed.
- (b): The provisions of private placement, as provided under section 42 of the Companies Act, 2013, already facilitate companies, including startups to raise monies  from  select  persons  without  following  the  detailed  provision  and disclosures required for making public issue/public offer.

Pursuant  to  Section  42(2)  of  the  Companies  Act,  2013,  the  offer  made  to Qualified  Institutional  Buyers  (QIBs)  and  employees  of  the  company  being offered  securities  under  an  Employees  Stock  Option  Scheme  (ESOS)  is  not counted  for  the  maximum  number  of  persons  whom  the  private  placement offer may be made to. (c):  At  present,  there  is  no  such  plan.  The  Ministry  notified  the  Companies (Acceptance of Deposits) Amendment Rules, 2020 vide G.S.R. 570(E) dated 07.09.2020,  whereby  the  maximum  maturity  period  for  Convertible  Notes issued by recognised startups was increased from five years to ten years. (d):  The  Companies  Act,  2013  is  the  principal  legislation  for  regulation  of companies  in  the  country  which  contains  adequate  provisions  to  facilitate ease of doing business in the country. Various initiatives taken by this Ministry to  facilitate  ease  of  doing  business  for  various  companies,  including  the companies in the state of Telangana are given at Annexure-A.

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## Annexure-A to the Lok Sabha Unstarred Q. No. 5962 part (d) to be answered on 30 th  March, 2026

## Measures to ease corporate compliance requirements for companies, including startups

- The  Central  Registration  Centre  (CRC)  was  operationalized  in  2016  to provide  speedy  incorporation  related  services.  An  e-Form  SPICe+  along with  a  linked  form  called  AGILE  PRO-S  was  introduced  for  providing different services at one place such as Name Reservation, Incorporation, Allotment  of  PAN,  TAN,  DIN,  EPFO  Registration,  ESIC  Registration,  GST number,  opening  of  Bank  Account  etc.  at  the  time  of  incorporation  of company to start the business immediately. Similarly, new e-Form FiLLiP (Form for incorporation of Limited Liability Partnership) was introduced for LLPs.
- There is no fee for incorporation of company with authorized capital up to Rs.15.00 Lakh.
- The Central Processing Centre (CPC) was established in February 2024 for centralized processing of 12 non-STP forms.
- Decriminalization  of  63  offences  under  the  Companies  and  LLP  Acts  in phased manner. While providing relief to corporates, one of the objectives of decriminalization has also been reduction of litigation burden in judicial courts and shifting the prosecution cases towards adjudication.
- The scope of fast-track merger was expanded in February 2021 to allow mergers of Start-ups with other Start-ups and with Small companies. The ambit has been further broadened in September 2025 to allow more classes of companies to choose this route. The rules have also been amended so that the 'deemed approval' requirement is implemented more effectively for fast-track mergers.
- Amendment  was  made  in  rule  25A  of  the  Companies  (Compromises, Arrangements  and  Amalgamations)  Rules,  2016  in  September,  2024 pursuant to which, merger of a holding company incorporated abroad with its wholly owned subsidiary incorporated in India now requires approval of Central  Government  (delegated  to  Regional  Directors).  Prior  to  this amendment, such mergers required approval of the NCLT. This is aimed at making this process speedier.

Additionally,  various  relaxations  from the  provisions  of  the  Companies Act, 2013 and rules made thereunder have been provided to start-up companies from time to time and the details are as under:

|   Sr. No. | Section/Rules under Companies Act, 2013         | Subject                                              | Provisions in the Company Act, 2013 to support Start-ups                                                                                                                                                                                                                                                    |
|-----------|-------------------------------------------------|------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         1 | Section 2(40)                                   | Financial Statement                                  | Requirement of cash flow statement to be part of financial statement is optional for Start-ups.                                                                                                                                                                                                             |
|         2 | Section 73(2) clause (a) to (e)                 | Acceptance of deposits                               | Start-ups were exempted from procedural compliance at the time of accepting deposits from its members (such as issuance of a circular to its members showing the financial position of company, credit rating, depositing 20% of the maturing deposits, and certification regarding default in repayments). |
|         3 | Section 92(1)                                   | Annual Return                                        | Directors of a start-up are allowed to sign annual returns of the private limited company if the Company does not have Company Secretary.                                                                                                                                                                   |
|         4 | Section 173(5)                                  | Meetings of Board                                    | 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, Start-ups are exempted from holding quarterly board meetings and are allowed to hold two board meetings in a calendar year, i.e., once every six months.    |
|         5 | Rule 6 of Companies (Incorporation) Rules, 2014 | Conversion of OPCs into Public and Private Companies | The requirement that an OPC must convert itself after its paid-up capital exceeds Rs 50 lakh and its average annual turnover exceeds Rs 2 crore was omitted. Since many start-ups are One Person Company, this allows them to retain the status as an OPC.                                                  |

|   Sr. No. | Section/Rules under Companies Act, 2013                                | Subject                        | Provisions in the Company Act, 2013 to support Start-ups                                                                                                                                                                                                                                                                    |
|-----------|------------------------------------------------------------------------|--------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         6 | Rule 8(4) of Companies (Share Capital and Debenture) Rules, 2014)      | Sweat Equity                   | In general, the issuance of sweat equity shares in a company shall not exceed 25% of the paid-up capital of the company at any time. However, in case of start-ups, this limit is upto 50% of its paid-up share capital.                                                                                                    |
|         7 | Rule12(1)(c) of Companies (Share Capital and Debentures) Rules, 2014   | Employee Stock Options (ESOPs) | In general, ESOPs are not given to employee who is a promoter or a person belonging to the promoter group and a director who either himself or through his relative or a body corporate, directly or indirectly holds more than 10% equity of the company. Start-ups are allowed to issue ESOPs to promoters and directors. |
|         8 | Rule 2 (1)(c) (xvii) of Companies (Acceptance of Deposits) Rules, 2014 | Convertible Note               | Start-ups 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.                                       |
|         9 | Rule 3(3) of Companies (Acceptance of Deposits) Rules, 2014            | Acceptance of 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 start-ups have been permitted to accept deposits from members without any restriction on the amount.                                |