hi guys,
We are facing a lot of problems in interpreting the companies act 2013:
1. Sweat equity for advisors – we are unable to issue stock options on a vesting schedule, or issue stock on a reverse vesting schedule. One workaround was to get someone in on a minor investment (say 1000 rupees) and issue stock on a reverse vesting schedule – but the new companies act has a minimum investment threshold of 20000 rupees.
2. Creation of two bank accounts to get money for funding – for private placement.
We are working a group of lawyers out of Bangalore, who have been very nice – but I think everyone is waiting for an acceptable interpretation of laws. I’m wondering how are the other startups faring ? I would really love the reference of a lawyer who has a solution around all these problems.
Darshan Bhambiru
Hi Sandeep,
You have not mentioned the TYPE of company that you have formed or are trying to form as well too. The interpretation and application would depend more on that part to start with. Since you are talking of Private placement are you going in for any kind of an IPO or is this a Public Ltd company already ?
Though I would leave this part for the Legal Eagles at TRHS, if you are looking to connect with some one in the Same field or have any particular query or need assistance and documentation requirements you can Check this up and Refer me if required as well too.
From Delhi you can also Refer to Rahul Dev from Startup Law Bank, and Dev Academy mentioned here already on your other post too
Introduction to Startup Law Bank – Collection of Resources to Formulate a Legal Strategy
Cheers and Good Luck !!!
sandeep
Darshan,
we have been informed that the private placement rules apply to EVERYONE in the new act – which is why even though we are a startup (and a pvt ltd company) this is impacting us.
The problem is happening because of the new rules and that is introducing a huge amount of compliance overheads for even small companies. We had to run around and open another bank account even though we are a 3 person startup.
I would love to be corrected here – but the thing is that we are being advised by a few lawyers who we trust are fairly competent (though they have asked for more time to “interpret” these rules in their correct context). I’m wondering if other startups are going through the same trouble.
Alok Rodinhood Kejriwal
why not a convertible debt instrument with a zero coupon?
conversion ratio = equity you wanna give away
sandeep
@alok – thank you very much for replying.
we have used a convertible debenture with zero coupon for our investors anyway. However, this mechanism has two problems with sweat equity:
1. it still falls under the private placement route (under new rules), which means that the advisors have to put in money (as per new rules of 2013). Now, nobody is sure if an advisor can have a different conversion ration as compared to everyone else.. or will that invite more compliance.
2. we are not able to build a vesting schedule via this mechanism – for example, we want to vest monthly with a 1 year cliff (very standard stuff), but that will be impossible via this mechanism unless we keep issuing a convertible instrument on a monthly basis.
sandeep
@alok – I just take back part #2 of what I wrote above. I just talked to my lawyer and she said that this route is possible, provided your advisors put in 20K INR (which is the minimum that private placement rules of 2013 allow for). You can then “reimburse” these advisors for the 20k that they put in.
It is still weird because now we will have to ask our advisors to put in and get back 20k INR – which will create huge barriers for most people (just because it is a pain).
But thanks a lot for the gyaan – it sure helped us !