The government has given great relief to those investing in startups. The government has given a big update for such investors. Actually, the time limit for the startup to convert the debt investment made in the company into equity shares has been increased to 10 years. This decision of the government will help the new entrepreneurs to overcome the effects of the corona epidemic.
The Department for Promotion of Industry and Internal Trade (DPIIT) has given this information by issuing a note. Till now convertible notes were allowed to be converted into equity shares for five years from the date of issue. This time limit has now been increased to 10 years.
can ask for equity
Any investor can invest money in the startup through convertible note. It is a type of bond/debt product. In this type of investment, the investor gets the facility that if the performance of the startup is good or if it achieves any goal in future, then the investor can ask for equity shares from the company on his investment.
Convertible Note Attractive Mode of Funding
A convertible note is issued in lieu of the fund received by the startup company in the form of debt. It can be converted into equity shares of the startup company. Now convertible notes can be converted into equity shares within 10 years from the date of issue. Experts say convertible notes have become an attractive medium of early stage funding for startups.
The burden of startup companies will be reduced
Sumit Singhania, Partner, Deloitte India, says that unlike Convertible Debentures/Debts, convertible notes offer an easier option to convert into equity. There is no need to set the variable ratio in advance. He says that by increasing the time limit for converting convertible notes to equity to 10 years, the burden of startup companies will be reduced.