Startup Listing Norms
On July 29, 2016, The Securities and Exchange Board of India (SEBI) released a discussion paper regarding changes to the startup listing norms. Startup India listing the regulatory framework for Institutional Trading Platform (ITP) was put in place vide amendments notified to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) on August 14, 2015. However, this did not result in any tracking with no startup listing in the last year 80% reduction in patent registration fee Modified and more friendly Bankruptcy Code to ensure 90-day exit windo encourage entrepreneurship, stand India across the world as a startup hub. Starting a business will become much easier with the availability of capital for small business startups. People looking for small business startup ideas will have much more than an idea to start a business.
Startup India Listing proposed changes
The discussion paper also looks to rename the platform as ’High-tech Start-up & other new business Platform’, to appropriately better reflect the type of companies that the platform should attract. This aims to help small start-ups to build one more avenue of funding.
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Key suggestions from the discussion paper are defined below:
Shareholder Registration (Startup India Listing)
Qualified Institutional Buyers (QIBs) Shareholding
QIBs are considered to be financially sophisticated, and recognized in this manner legally by U.S. law and securities market regulators. Because of this classification, QIBs are considered to require less protection from public issuers than most public investors. present requirement: The current “Issue of Capital and Disclosure Requirements Regulations (ICDR) require QIBs to have a minimum level of holding of the pre-issue capital of the companies seeking to list on this platform:
- at least 25% of the pre-issue capital in technology-related companies under Reg. 106Y(1)(a); and
- at least 50% of the pre-issue capital in other companies under Reg. 106Y(1)(b) seeking to list on the platform.
Shareholder Registration (Startup India Listing)
Proposed amendments: Reduction in pre-issue holding to 25%.
The minimum level of prior holding has been reduced to 25% for all companies seeking to list.
Changes to the categories of investors considered in determining the 25% pre-issue holding
The discussion paper proposes to include investors other than QIBs to assess the eligibility. The additions include:
- Family Trust or systematically important NBFCs registered with the Reserve Bank of India or intermediaries registered with SEBI, all with net worth of more than five hundred crore rupees, as per the last audited financial statements
- Category III Foreign Portfolio Investors FPIs are not allowed to invest in unlisted shares.
- An entity meets all the following criteria: a. It is a pooled investment fund with minimum assets under management of USD 150 million b. It is registered with a financial sector regulator in the jurisdiction of which it is a resident c. It is a resident of a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s multilateral Memorandum of Understanding (MoU) or a signatory to a bilateral MoU with SEBI d. It is not resident in a country identified in the public statement of the Financial Action Task Force as i. a jurisdiction having a strategic Anti-Money Laundering (AML) or combating the financing of terrorism deficiencies to which countermeasures apply or ii. a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies of shareholder registration
Cap in holding in post-issue capital company share register.
Present requirement: The existing regulations stipulate that no person can individually or collectively with others hold more than 25% of the post issue capital of the Private Limited Company
Proposed changes: This requirement is proposed to be discontinued/removed
Company Registration (Startup India Listing)
Allocation to Investors / Start-up Investors
Present requirement: The existing regulations require an allocation of 75% of the net offer to institutional investors and 25% to non-institutional investors.
Proposed changes: The allocation is proposed to be revised as follows: • Not less than 50% to institutional investors • Not more than 50% to non-institutional investors
Existing requirement: No institutional investor shall be allotted more than 10% of the issue size
Proposed changes: The ceiling on allotment to individual institutional investors may be revised upwards from 10% to 25%
Market Making
Present requirement: There is no provision for market-making under the current regulations.
Proposed changes: The regulations seek to make market-making compulsory for a minimum period of 3 years for issue sizes of less than INR100 crore.
Lock-in of pre-issue capital
Present requirement: The current regulations require the entire pre-issue capital of the shareholders to be locked in for 6 months from the date of allotment in case of listing under public issue or date of listing in case of listing without public issue. However, the lock-in is subject to certain exemptions provided for shares arising out of ESOPs and shares held by VCF/AIF Category I/FVCI in case of listing under IPO.
Proposed changes: The lock-in of 6 months may apply uniformly to all the categories of shareholders registration.
Minimum Trading Lot
Present requirement: The minimum trading lot stipulated under the current guidelines is Rs. 10 Lakhs Proposed changes: The minimum trading lot size may be lowered to INR 5 lakh
Proposed changes: The minimum trading lot size may be lowered to INR 5 lakh
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