RBI relaxes FDI norms to boost start-ups

The Reserve Bank of India (RBI) relaxed several rules including foreign direct investment norms to boost start-up activity in the country.

To begin with, start-ups are allowed to receive foreign venture capital investment irrespective of the sector in which they operate. The new norms will enable transfer of shares from foreign venture capital investors to other residents or non-residents.

The central bank also permitted, in case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months. The central bank simplified the process of dealing with delayed reporting of foreign direct investment (FDI)-related transaction by building a penalty structure into the regulations itself.

STARTUP COMPANY

A company that is in the first stage of its operations; where the entrepreneur moves from the idea stage to securing financing, laying down the basis structure of the business. These companies are often initially bank rolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small scale operations are not sustainable in the long term without additional funding from venture capitalists.

VENTURE CAPITALIST

Money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets. It typically entails high risk for the investor, but it has the potential for above-average returns.

Escrow
A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.

Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability for damages.