In order to regulate India's $500 billion start-up funding market, the government is considering to set up a regulating institution named 'Alternate Markets Commission' (AMC), which would be responsible for drafting regulations to infuse confidence and make it easier for unlisted firms to raise money from investors.

Interestingly and a breather for startups, the proposed AMC would not have to consult the government or any of the agencies/institutions under the government before firming up the rules, which include the ministry of corporate affairs (MCA), the Securities and Exchange Board of India (SEBI) as well as the Reserve Bank of India.

"The government will have to introduce a law for the proposal to go through", said a note prepared by the department of economic affairs (DEA), under the finance ministry.

DEA had earlier sent a note to SEBI, MCA and startup funding bodies, stating that AMC would be empowered to frame policies for any type of fund-raising by unlisted entities, including public or private limited firms, non-profit entities, trusts, societies, LLPs, sole proprietorships and partnership firms.

According to the proposal, unlisted firms or individuals can raise capital as equity or debt, including convertible debenture and preference shares, donations, units, deposits, contribution and partnership capital, or in any other form.

The DEA note further said that, an issuing entity would be able to raise a maximum of Rs.100 crore against any instrument in a year. The annual funding limit for an investor subscribing to the instruments would also be capped, but would vary if the investor is a company or an individual.

There shall be no minimum investment limit set for the investor to accommodate crowdfunding. However, the DEA note did not clarify the minimum investment limit for angel investors, venture capital firms. Currently, the minimum investment limit remains at $38.5K (INR 25 Lakh).

Additionally, an entity can raise funds through only one platform in any given financial year, said the DEA note.

Nidhis and chit funds, too, can use this platform to raise member contributions, while mutual funds and alternate investment funds (AIF) can find their potential unit holders through this platform. A Nidhi company, is one that belongs to the non-banking Indian finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money between their members.

The proposed AMC would be authorized to oversee the enforcement of its policies, and any violation of rules would be dealt with by the police and courts, the note said. Once AMC is in place, fundraising activities would be exempted from the existing norms under SEBI, MCA and the Reserve Bank of India.

The state-run authority would be responsible for regulating and strengthening alternate markets and encourage start-ups to adopt ways to reduce the cost of raising capital. It would be authorized to inspect and audit firms operating on the platform to facilitate crowdfunding or startup funding, including donations from trusts and societies.

Via - Live Mint | Top Image -

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