Mumbai: The government is considering a move to set up a regulator to oversee the $500 billion start-up funding market for Indian enterprises.
The proposed Alternate Markets Commission (AMC) would be responsible for drafting regulations to inspire confidence and make it easier for unlisted firms to raise money from investors.
The institution would be independent of the ministry of corporate affairs (MCA) and the Securities and Exchange Board of India (Sebi).
A note prepared by the department of economic affairs, under the finance ministry, said the government will have to introduce a law for the proposal to go through. Mint has reviewed a copy of the note.
According to the MCA, the total authorised capital of unlisted private firms stood at Rs20.19 lakh crore. Additionally, the value of authorised capital of unlisted public firms is estimated at Rs14 lakh crore.
The department of economic affairs (DEA) had earlier sent a note to Sebi, MCA and start-up funding bodies, stating that AMC would be empowered to frame policies for any type of fund-raising by unlisted entities, including public or private limited firms, non-profit entities, trusts, societies, LLPs, sole proprietorships and partnership firms. AMC would not have to consult the government before firming up the rules.
The note said individuals, financial institutions, foreigners, NRIs, PIOs, trusts, societies and companies would be allowed to invest in companies through an electronic platform or otherwise.
According to the proposal, unlisted firms or individuals can raise capital as equity or debt, including convertible debenture and preference shares, donations, units, deposits, contribution and partnership capital, or in any other form. An issuing entity would be able to raise a maximum of Rs100 crore against any instrument in a year. The annual funding limit for an investor subscribing to the instruments would also be capped, but would vary if the investor is a company or an individual, said the DEA note.
“There shall be no minimum investment limit set for the investor to accommodate crowdfunding," the note said. “An entity can raise funds through only one platform in any given financial year."
Nidhis and chit funds, too, can use this platform to raise member contributions, while mutual funds and alternate investment funds (AIF) can find their potential unit holders through this platform.
The proposed commission would be authorised to oversee the enforcement of its policies, and any violation of rules would be dealt with by the police and courts, the note said. Once AMC is in place, fundraising activities would be exempted from the existing norms under Sebi, MCA and the Reserve Bank of India.
The state-run authority would be responsible for regulating and strengthening alternate markets and encourage start-ups to adopt ways to reduce the cost of raising capital. It would be authorised to inspect and audit firms operating on the platform to facilitate crowdfunding or start-up funding, including donations from trusts and societies.