RBI clarifies regulatory relaxations for Start-ups

The RBI in its sixth bi-monthly monetary policy statement had proposed steps to improve ease of doing business for start-ups through easier access to foreign capital and by enabling smoother transfer of ownership. Certain issues which requires clarification for start-ups are:

a) Whether start-up can accept payment on behalf of overseas subsidiary?

b) Whether Indian companies can issue shares without cash payment through sweat equity shares?

On first issue RBI made following clarification:

• RBI vide AP (DIR Series) Circular No. 51 dated 11-02-2016 has clarified that a start-up with an overseas subsidiary is permitted to open foreign currency account abroad to pool the foreign exchange earnings.
• Further start-up is also permitted to avail of the facility for realising the receivables of its overseas subsidiary or making the above repatriation through Online Payment Gateway Service Providers for value not exceeding USD 10,000 or up to such limit as may be permitted by the RBI from time to time under this facility.
• RBI further clarified that the overseas subsidiary of the start-up is also permitted to pool its receivables arising from the transactions with the residents in India as well as the transactions with the non-residents abroad into the said foreign currency account opened abroad in the name of the start-up.

On second issue RBI made following clarification:

RBI vide AP (DIR Series) Circular No. 51 dated 11-02-2016 has also clarified that Indian companies can issue shares without cash payment through sweat equity shares. It stated that companies are allowed to issue equity shares against any other funds payable by the investee company (e.g. payments for use or acquisition of intellectual property rights, for import of goods, payment of dividends, interest payments, consultancy fees, etc.), remittance of which does not require prior permission of the Government of India or Reserve Bank of India under FEMA, 1999.