SEBI Rules Relaxation: Boost for Startups

SEBI Rules Relaxation: Boost for Startups

Question: SEBI has opened up the regulations for start-ups. This will boost their growth and productivity. Discuss.


• In fresh progress for start-ups, capital market regulatory authority SEBI has relaxed regulations for listing and raising funds through a dedicated platform on domestic stock exchanges rather than going abroad

• As per the new norms, approved by SEBI, stock exchanges will have a separate institutional trading platform for listing start-ups from new age sectors such as e-commerce companies

• Minimum investment here required should be INR 10 lakh

• SEBI has also relaxed the mandatory lock in period for promoters and pre listing investors for their listing to 6 months as against 3 years for other firms

• Disclosure requirements for companies have also been relaxed

• At least 25 percent of their pre-issue capital would require institutional investors for technology start-ups while requirements would be 50% for companies belonging to other areas

• As per the new norms, 75% shares can be reserved for institutional investors, wherein allocation will be on discretionary basis for such investors

• It will be on proportional basis for non institutional categories

• SEBI has also provided for reclassification of promoters as public investors if they let go of special rights such as voting powers and lack ownership of more than 10% stake

• An outgoing promoter can serve as a CEO or hold other senior positions for three years if approved by company’s board

• SEBI has come out with various corporate governance and disclosure regimes for start-ups seeking listing on exchanges

• Disclosure must contain only broad objects of the issue and there shall be no cap on the amount raised for general corporate purposes

• Institutional investors and family trusts as well as systematically important NBFCs and intermediaries registered with SEBI all holding more than INR 500 crore will be allowed to access ITP/Institutional Trading Platform

• Non institutional investors excluding retail individual investors can also use this platform

• As far as public offer is concerned, allotment to institutional investors will be on discretionary basis whereas for other non institutional investors, it should be on proportional basis

• Under discretionary allotment, institutional investor can only issued ten percent of the total issue size

• All shares allotted on discretionary basis should be in line for lock in by anchor investors, 30 days at present

• For share sale of start-ups, the number of allottees in case of public offer should be a minimum of 200

• For rationalising disclosure requirements for all issuers, regardless of plans to get listed on the main board or ITP, SEBI said the disclosures in the offer document in line with group companies, litigators and creditors should be in line with policy on materiality defined by the issuer

• All relevant disclosures should be available on the issuer’s website while product ads would not be needed to provide details of public or rights issue

• Existing firms listed on SME-ITP can follow their existing regulatory framework

• The new platform will only be accessible to companies which are intensive in their employment of IT, technology, intellectual property, data analytics, nano technology, bio-technology for providing products, services or business platforms with substantial value addition and around 25% of the pre-issue capital being held by QIBs

• This would be accessible for any other start-up where at least 50% of the pre-issue capital is held by QIBs

Facts and Stats

• Indian is ranked number 5 where startups are concerned

• There are greater than 3,100 start-ups in India