Alternate Market Commission - A Boost for Startup Ecosystem

Bhumesh Verma, Managing partner and Soumya Shekhar, Associate

Introduction

Startup eco-system carries vast potential for economic activity and revenue generation in India. It has the knack to change the dynamics of the Indian economy to a large extent. To make it happen, however is hugely dependent on proper monitoring coupled with timely measures to support the startup fraternity by providing appropriate incentives.

Last few years, Indian government has been beating its trumpet of having created and facilitated the Startup eco-system. However, the results have been not much to write home about.

Better late than never. It seems the central government has finally recognized the magnitude of startup fraternity in fortifying the economic development of the nation.Now, the government is deliberating to establish a separate governing and regulatory body, i.e., Alternate Markets Commission (AMC) to monitor the functionality of a potential USD 500 billion start up market for the Indian entities.

The proposed AMC will work independentof the Ministry of Corporate Affairs (MCA) and the Securities Exchange Board of India (SEBI). The proposal will materialize via articulating and approval of law by the central government.

The key object behind the establishment of AMC is to make it responsible to recoup at some of the lost confidence in the startup fraternity – this would be achieved by drafting startup friendly regulations and by drafting more entrepreneurs to venture into the startup ecosystem and simplify the procedures for unlisted firms to raise money from the investors.

As of now, fundraising for growth and entering the next stage is the biggest challenge before startups. Keeping this in mind, one of the most important responsibility of AMC shall be to regulate and fortify the alternate markets and encourage start-ups to employ diverse methodologies to reduce the cost of raising capital.

Department of Economic Affairs (DEA) has intimated to SEBI, MCA and other startup bodies that the AMC will work independently of government and other regulatory bodies and would have the authority to articulate appropriate and business friendly regulations in its own discretion without consulting the central government for any sort of fund raising acts by the unlisted firms.

The following are the interesting prospects listed in the DEA notification to the aforesaid bodies:

• Proposal to permit individuals, financial institutions, foreigners, NRIs, PIOs, trusts, societies and companies to invest in companies through an electronic platform or otherwise is under deliberation.

• Generating capital/financial funds (equity/debt) including convertible debenture and preference shares, donations, units, deposits, contribution and partnership capital, or in any other form by unlisted firms or individuals will be permitted.

• Maximum capital/financial funds up to RS. 1 billion could be raised by the issuing entity.

• Depending upon the investor (company or individual), different capped thresholds would be imposed on the annual funding limit for an investor subscribing to the instruments.

• No minimum investment limit is established for the investor with the objective to facilitate crowdfunding.

• In any given financial year, financial funds can be raised by any entity through only one platform.

• AMC can also be used by Nidhis and chit funds to raise member contributions and can be used by mutual funds and alternate investment funds (AIF) to find their potential unit holders.

• The enforcement of AMC articulated policies would be its own responsibility.

• Any violation of AMC policies would be strictly enforced by the police and courts.

Another interesting prospect is that the moment AMC is started working all fundraising activities of unlisted firms would be exempted from the existing norms under SEBI, MCA and the Reserve Bank of India.

It is expected that AMC would be given the authority to conduct inspection and audit on firms operating within its ambit to smooth the progress of crowdfunding or start-up funding.

The establishment of AMC will certainly:

(i) encourage startup fraternity by focusing exclusively on the development of startup ecosystem;

(ii) wipe out or at least reduce the existing roadblocks barricading and hindering the development of startup ecosystem;

(iii) induce more people to join the bandwagon of startup ecosystem;

(iv) ease the work burden on other regulatory bodies (SEBI, RBI and MCA).

All this should ultimately come in as a shot in the arm for the prospect of economic development of the nation.

May a million startups come up !



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