Thinking of starting a startup in India? Well, you seem to have chosen the right time and the right place. The Securities and Exchange Board of India (SEBI), India’s stock market regulator, recently announced that startups are all set to have a separate trading platform for listing. This step can be seen as as part of the various measures taken by SEBI in order to encourage entrepreneurs and startups to list their companies in India rather than in markets abroad.
Here are five things you must know about SEBI’s new rules:
- A startup is no longer required to be profitable in order to get listed on the stock exchange. According to the earlier rules, a startup was required to be profitable for at least a period of three years in order to get listed. Industry insiders are considering this as the most important change in the recent steps taken by SEBI.
- Disclosure norms – Under the new rules, the earlier stringent disclosure norms have now been slightly relaxed. This can act as a real breather for startups and entrepreneurs that weren’t so happy and comfortable about revealing everything about their startup right away. Also, the earlier rules also required dedicated teams in order to meet the regulatory requirements. Managing and affording such a team was a little difficult for startups at their nascent stages.
- Exit Policy for Venture Capitals and Angel Investors – What could be seen as big relief for Venture Capitals and Angel Investors, under the new rules, they will be now be able to exit much easier than before. According to industry experts, this rule should have been implemented 3-5 years ago but it’s better late than never, we guess.
- If at least a quarter of a startup’s pre-issued capital is held by qualified institutional buyers – like venture capital, private equity firms or non-banking financial companies, then, under the new rules, startups operating in the areas such as as biotech, information technology and analytics are now eligible to get listed on the Institutional Trading Platform of exchanges. Startups not belonging to the tech sector, can also get list on the platform but they would be required to have half of their pre-issue capital being held by Qualified Institutional buyers.
- Minimum Locking Period of Founders’ Shares – What could be seen as welcome change for entrepreneurs, the new rules dictate that the Startup founders’ shares will now be locked in for a minimum period of six months only, instead of the earlier period of three years. This would provide the founders more incentive to get their companies listed.
With a total count of 3,100 startups, India is currently ranked fifth in the world after the United States, the European Union, Canada and China.
According to SEBI chairman UK Sinha, “They (startups) felt the regulatory regime in this country was not favourable for listing in India. So we have made very special provisions for such startup companies.”
These new changes are expected to go live from January 1, 2016.
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