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Relaxation in Deposit Norms for Startup Companies: MCA allows additional 5 years time to repay deposits of Rs. 25 lakhs or more

MCA - startup companies - Deposit Norms - Taxscan

The Ministry of Corporate Affairs (MCA) on Monday relaxed deposit norms for startup companies and allowed an additional 5 years’ time to repay deposits of Rs. 25 lakhs or more.

The government notified the Companies (Acceptance of Deposits) Amendment Rules, 2020, which amended the Companies (Acceptance of Deposits) Rules, 2014.

Earlier, according to the Companies Act of 2013, any company including startups that received money from any person for over 365 days, was considered as a deposit.

This makes startups follow stringent regulations such as informing the registrar, maintaining the deposit repayment reserve and getting credit rating, before raising the money for over 365 days.

In the Companies (Acceptance of Deposits) Rules, 2014, in rule 2, in sub-rule (1), in clause (c), in sub-clause (xvii) for the words “five years”, the words “ ten years” shall be substituted.

Further  in rule 2, in sub-rule (1), in clause (c), in sub-clause (xvii) in the Explanation, in clause I, for the letters, figures, brackets and words “G.S.R. 180 (E) dated 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry”, the letters, figures, brackets and words “G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade ” shall be substituted.

In the rules, in rule 3, in sub-rule (3), in the second proviso, in clause (i), for the words “five years”, the words, “ten years” shall be substituted.

The tenure of the convertible debentures has been raised from five to ten years and has also exempted money raised through unsecured NCBs by the corporate affairs ministry.

The amendment shall come into force from September 7, 2020.

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