In light of emerging corporate governance concerns within certain startups, a government-appointed panel is going to consider the necessity of a more rigorous regulatory regime for these entities.
Striking a balance between facilitating ease of doing business and ensuring compliance will be a key focus of the discussions.
Government Panel To Decide On The Necessity of Regulatory System For Startups
According to an official, a panel appointed by the government is expected to deliberate on the necessity of a more stringent regulatory system for startups in light of certain corporate governance issues that have arisen in some of these companies.
The official emphasized that startups are generally small and, therefore, regulations should strike a balance between ensuring ease of doing business and maintaining a compliance-oriented regulatory framework.
The Company Law Committee (CLC), established by the corporate affairs ministry in September 2019, is likely to examine different aspects of the regulatory environment surrounding startups, the official informed PTI recently.
The CLC, led by the corporate affairs secretary, consists of government officials, industry representatives, and experts among its members. Its primary focus is on the effective implementation of the Companies Act, 2013, and the Limited Liability Partnership (LLP) Act, 2008, with the goal of facilitating and promoting a more business-friendly environment.
The ministry has not yet expressed a definitive stance on whether startups require a more rigorous regulatory framework, but the official stressed the importance of not burdening these entities with excessive regulatory compliance measures.
Government’s Move To Support Startups
The Companies Act and the LLP Act are both enforced by the ministry. As per the companies law, a startup is defined as a private company incorporated under it and officially recognized as a startup in accordance with the notification issued by the Department for Promotion of Industry and Internal Trade.
To support startups, various relaxations have been provided, including exemptions from certain procedural compliance requirements. For instance, a private company identified as a startup for a five-year period from its incorporation date is permitted to accept deposits from members without any restrictions on the amount.
Recently, the ministry initiated an inspection of the financial records of the prominent edtech company BYJU’S. The inspection of the books of Think & Learn Pvt Ltd, operating as BYJU’S, will be conducted by the ministry due to the company’s delay in submitting financial statements and concerns over corporate governance.
