The Government of India may exempt crowdfunding from the Companies Act to bring it under the regulatory authority of Securities and Exchange Board of India (SEBI.)
According to a news daily, two people with direct knowledge of discussions between the Corporate Affairs Ministry and SEBI, fundraising will be brought under the purview of SEBI to ease the way startups raise funding. The Government will be invoking Section 462 of the Companies Act which will give the Central Government the power to exempt class or classes of companies from the provisions of this act. However, this move requires the Parliament’s approval.
But, certain other sections of the Act stand as hurdles to this move as the Section 42 of the Companies Act limits the number of investors in a private entity to less than 50 at one go or 200 in a year. The companies, according to the section, will have to compulsorily make a public offer and list the securities on a recognized stock exchange if the number of investors is 200 or more in one year.
Crowdfunding uses social networks and internet platforms for fundraising attracting hundreds or thousands of donors who pay small amounts to fund a project. SEBI issued a warning against crowdfunding platforms in October last year calling them unauthorized, unregulated and illegal. However, in August 2017, SEBI tried to finalize norms for such platforms and even asked crowdfunding firms details about their businesses. The regulatory board further instructed such angel funds to exhibit a disclaimer that these platforms are neither stock exchanges nor authorized by the markets regulator to solicit investments.
As of September 2016, crowdfunding platforms in India raised close to $ 60 million in two years. With the unprecedented boom in the startup ecosystem, funding activity in the unlisted space has intensified. While the discussions between the market regulatores have begun, no concrete decision has been taken so far.