In accordance to the Covid-19 pandemic situation the Ministry of Corporate Affairs (MCA) on September 7 ,2020, amended the depository norms for the startup companies and allowed an additional relief of 5 years for the repayment of deposits up to Rs.25 lakhs or more that might provide more flexibility to the startup companies in raising funds.

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The government notified the Companies (Acceptance of Deposits) Amendment Rules, 2020, which amended the Companies (Acceptance of Deposits) Rules, 2014 and is now to be called as Companies (Acceptance of Deposits) Amendment Rules, 2020.

Also in the Companies (Acceptance of Deposits) Rules, 2014 in rule 2, in sub-rule (1), in clause (c), in sub-clause (xvii), the following words get substituted-

  1. for the words “five years”, the words” ten years” shall be substituted.
  2.  for the words “five years”, the words” ten years” shall be substituted.

And in rule 3, in sub-rule (3), in the second proviso, in the clause –

  •  for the words” five years”, the words, “ten years” shall be substituted. 

In previous conditions, any company including startups that received money from any person for over 365 days, was considered as a deposit, according to the rules mentioned in the Companies Act of 2013.

This new amendment allows startups to raise funds through corporate bonds or other convertible instruments for 10 years, as against five years. The department has also changed the period of repayments from five to 10 years. Besides this, an amount of up to Rs.25 Lakhs received by a startup through a convertible note in a single tranche will not get considered as ‘deposits’ under company law compliance.

All the above-mentioned amendments shall come into force from September 7, 2020.

With Warm Regards,

CL Bureau.

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