Amid emerging corporate governance concerns within certain startups, the Indian government has appointed a panel to assess the necessity of implementing a more rigorous regulatory regime for these entities.
Striking a balance between facilitating ease of doing business and ensuring compliance will be a key focus of the discussions held by the panel.
According to an official source, the panel, known as the Company Law Committee (CLC), was established by the corporate affairs ministry in September 2019. It is expected to deliberate on various aspects of the regulatory environment surrounding startups, taking into account certain corporate governance issues that have arisen in some of these companies.
While startups are typically small and agile, the regulations proposed should aim to strike a balance between fostering a business-friendly environment and establishing a compliance-oriented regulatory framework.
The CLC, led by the corporate affairs secretary and comprising government officials, industry representatives, and experts, primarily focuses on the effective implementation of the Companies Act, 2013, and the Limited Liability Partnership (LLP) Act, 2008, with the aim of promoting and facilitating a conducive business ecosystem.
While the ministry has not yet expressed a definitive stance on whether startups require a more stringent regulatory framework, the official emphasized the importance of avoiding burdening these entities with excessive regulatory compliance measures.
Under the Companies Act and the LLP Act, a startup is defined as a private company incorporated under these acts and officially recognized as a startup based on the notification issued by the Department for Promotion of Industry and Internal Trade.
To support startups, the government has provided various relaxations, including exemptions from certain procedural compliance requirements. For instance, a private company identified as a startup for a five-year period from its incorporation date is permitted to accept deposits from members without any restrictions on the amount.
Recently, the corporate affairs ministry initiated an inspection of the financial records of BYJU’S, a prominent edtech company, due to concerns over the company’s delay in submitting financial statements and issues related to corporate governance. The inspection of the books of Think & Learn Pvt Ltd, operating as BYJU’S, will be conducted to ensure compliance with relevant regulations.
