Corporate Affairs should stay clear of startup share premium
The ministry of corporate affairs has now got into the act and it has sent several start-ups notices asking them to justify the premiums that they have got and also to indicate if they are registered under various government schemes including the one run by DIPP. Presumably, the corporate affairs ministry wants to ensure start-ups are not being used to launder money, but this need to crack down on black money has to be balanced by what damage this does for the start-up eco-system. The premium paid is essentially what the investor thinks of the plan the start-up has, its ability to deliver on it, and the wealth this can create if it works. At a rational level, few start-ups, or even investors, can really justify this since it is really a punt, albeit a better informed one. The government would do well to tread lightly, lest it kill start-ups before they really get going. more
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While I appreciate the sentiment, the process for NOT being called upon to justify the valuation was well documented in the Act and Rules. If the Entrepreneurs either: a. got bad advice b. chose to disregard it c. chose to take no advice at all We can't blame the Govt .... Ignorance of the law is no excuse for it NOT to be enforced. That said, even if dealt with suitably now, with the required documentation, the Notice is not as much of a threat as it is made out to be ... more
Nov 30
notices seems justified at this stage, since some indians are notoriously famous for brazen breach of law, so for those category of people, notices are timed nicely. any startup which has collected premiums and higher valuation, there is always justification that management first gives , propounds its case for higher valuation and then earns premium based on que of potential investors in pipeline. this may not be a big party spoiler at this stage atleast more
Nov 29
