New Companies Bill, a positive for start-ups

Priyankapani :B :14 Sep 2013

The ease in the rule for mergers, the concept of a small company and the concept of independent directors will provide better growth opportunity. -
 Sunil Goyal, founder of YourNest Angel Fund

The new Companies Bill has brought a lot of cheer to start-ups as it has addressed some issues and challenges they face. Sunil Goyal, founder of YourNest Angel Fund, which invests in early-stage companies and mentors them, spoke to Business Line on the impact of the Bill on the start-up ecosystem.

Excerpts from the interview:

What impact will the new Companies Bill have on start-ups?

The Companies Act, 2013 is to an extent positive for Indian start-ups. The start-ups will be able to easily commence a business as a ‘One Person Company’ and can be known as a private limited company which is a great move as in India most small businesses are started by one person and run as sole proprietorship. That apart, start-ups can now reach out for crowd funding or angel funding with up to 200 members. The easier rules for mergers, the concept of a small company, and the concept of independent directors will provide better growth opportunity.

What clauses in the Bill are specific to the start-ups and entrepreneurs?

A “Small Company” having a paid-up capital of less than Rs 50 lakh or with a maximum turnover of Rs 2 crore has been given some relaxations… thier financial statements need not include cash flow; only two board meetings are mandatory, one each in half of a calendar year; the annual return to the Registrar of Companies (ROC) can be signed by the director of the company, thus a practising company secretary is not mandatory for the initial period; and allowing self-approved mergers between two small companies.

What will be the impact of these on start-ups?

These provisions, only to a minor extent, enable the start-ups to get going, operate and exit businesses with ease. We actually have a long way to go from here.

What is the initial response to the Bill from entrepreneurs?

There are several doubts that need to be clarified as in what are the requirements to become a private limited company or how the small and medium firms (up to Rs 50 crore in turnover) as per accounting standards apply to the start-ups. Also will the Bill ease the process of setting-up a company including consolidation of steps at ROC and the online integration for initial steps such as PAN, TAN, shop and establishment Act among others?

What are some of the aspects, relevant to start-ups that the bill could have addressed?

Our start-ups extensively use ESOPs to attract talent. The entrepreneurs are really open to sharing wealth with co-founders, advisors and employees. The process of ESOPs issuance and accounting should have been addressed at least for a small company.

What is the most positive aspect of the Bill?

The concept of a ‘small company’ itself is encouraging. Although, over a period of time it can be extended to multiple areas for ease of operation of a ‘small company’ and bring in a concept of self-regulation.

How does the Bill allow start-ups to list or raise funds without difficulty?

It has limited impact on the funding aspect. Two key changes such as ease of merger process and the recognition of ‘Right of First Refusal’ with investors may get some consideration while making an investment decision.