INDIA Law and Practice Contributed by: Raj Ramachandran and Krutamana Pisipati, JSA
been a trend of companies either consolidat- ing in India itself or having incorporated outside India considering “reverse flipping” to India. There are various reasons for the change in trend and interest that include the target mar- ket of these companies being primarily in India and better valuation proposition at the Indian exchanges as opposed to exchanges in foreign jurisdictions considering the valuation of the companies being more conducive for the Indian market. In quite a timely move, there have also been a few governmental and regulatory poli- cies, which have helped facilitate these com- mercial moves. It takes approximately two to three weeks to incorporate a private limited company in India, although the process has been quicker in some cases. Furthermore, pursuant to the Indian Com- panies (Amendment) Act, 2015, the minimum capital requirement of INR100,000 (approxi- mately USD1,200) has since been omitted from the Indian Companies Act, 2013. 2.2 Type of Entity Start-up companies have mostly chosen to incorporate as private limited companies, given the familiarity of the structure as well as estab- lished precedents governing various aspects involving laws and business operations. This is particularly critical when nuanced structures are required because of the specific nature of the transaction. However, limited liability partnerships (LLPs) are also prevalent amongst newly incorporated entities due to comparatively limited compliance requirements along with specific tax benefits. For LLPs, taxes are not levied on profit distribution among partners, as compared to private com-
panies where taxes are required to be paid on the corporate income, as well as on dividends. Entities also have the option to convert from an LLP to a private limited company and vice versa. The Indian Companies Act, 2013 also allows the establishment of a one-person company struc- ture. 2.3 Early-Stage Financing The Department for Promotion of Industry and Internal Trade has created the Startup India Seed Fund Scheme (the “SISFS”) with an out- lay of INR9.45 billion (approximately USD111.84 million). As per Indian government figures, the scheme will support an estimated 3,600 entre- preneurs through 300 incubators in the next four years. The SISFS will be disbursed to eligible start-ups through eligible incubators across India. For government funding, an online call for applications is often posted pursuant to which start-ups are shortlisted. Upon selection, certain guidelines as prescribed by the government are required to be complied with along with ensur- ing the utilisation of funds as per the guidelines. Venture capital firms, angel investors, family offices and high net worth individuals provide early-stage financing to start-ups. Documenta- tion for these investments is quite formal and fairly standard, although the documentation is more detailed and nuanced with venture capital financing rounds. Early-stage investments take the form of convertible or SAFE notes and pro- gress to equity and optionally or compulsorily
convertible instruments. 2.4 Venture Capital
There are numerous local venture capital firms, local investment firms associated with and
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