The government of India release a new notification according to which startups are now permitted to issue stock option to their employees for up to 10 years from their joining which was 5 earlier. The change in the definition of startups was announced by Ministry of corporate affairs with respect to the one announced by Department for Promotion of Industry and Internal Trade (DPIIT).

Startups are now allowed to issue sweat equity shares of up to 15% of their paid-up share capital. Sweat equity refers to a person’s contribution towards a business or project which is generally not monetary but is calculated based on physical labor, mental effort or time.

The notification also removes the provision requiring a listed company that has privately placed its debentures to set aside reserves every year. This development also addresses the long-awaited issue of updating the definition of a startup amending the Companies (Share Capitals and Debentures) Rules, 2014.

Almost a year ago, DPIIT amended the definition of startup increasing the time period of which a company could be considered a startup from 5 years to 10 years. They also altered the annual turnover cap for a startup from Rs 25 crore to Rs 100 crore.

Ankit Singhi, a partner at Corporate Professionals stated, “Amendments in sweat equity provisions are welcome. Amendment in the definition of startup will remove ambiguity and increase in the period of allotment will definitely help a startup to attract and retain talent.”

The new development also removed provision that required a listed company that has privately placed debentures to invest or deposit a sum equivalent to at least 15% of the amount maturing during the financial year by April 30 each year. These decisions will definitely help the startups to achieve a sustainable growth.

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