Startups: government makes mandatory minimum equity holding by funding agencies

For further streamlining the startup sector, the government has brought additional funding norm the startup sector. The new regulation instructs that a startup should have a minimum equity paid up capital of 20% from funding institutions.

The minimum equity holding can be from incubation, angel or private equity fund, an accelerator or angel network duly registered with SEBI.

Now, with the new norm, it is mandatory for startups to provide the equity holding to funding institutions to get the benefits provided under the recently launched Startup Action Plan.

An important dimension of this requirement is that it may reduce misutilisation of the scheme by big investors to reap the sunrise clause by arranging their own captive ventures.

As part of the startup Action Plan, the sunrise clause gives a tax holiday for first three days. Similarly, hassle free regulation including more flexibility for labour and environment laws are given for the sector.

Self certification scheme for the sector is expected to simplify the establishment of business under startups.

Several other incentives including encouragement for IPR registration at reduced costs are included under the Action Plan.