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               Securities and Exchange Board of India

In order to facilitate investment by VCF in new enterprises, the Companies Act may be amended so as to permit issue of shares by unlisted public companies with a differential right in regard to voting and dividend. Such a flexibility already exists under the Indian Companies Act in the case of private companies which are not subsidiaries of public limited companies.


QIB Market for unlisted securities:  A market for trading in unlisted securities by QIBs be developed.  


NOC Requirement : In the case of transfer of securities by FVCI to any other person, the RBI requirement of obtaining NOC from joint venture partner or other shareholders should be dispensed with.


RBI Pricing Norms: At present, investment/disinvestment by FVCI is subject to approval of pricing by RBI  which curtails operational flexibility and needs to be dispensed with.


Global integration and opportunities:

(A) Incentives for Employees: The limits for overseas investment  by Indian Resident Employees under the Employee Stock Option Scheme in a foreign company should be raised from present ceilings of  US$10,000 over 5 years, and US$50,000 over 5 years for employees of software companies in their ADRs/GDRs, to a common ceiling of US$100,000 over 5 years.    Foreign employees of an Indian company may invest in the Indian company to a ceiling of US$100,000 over 5 years.

(B) Incentives for Shareholders:  The shareholders of an Indian company that has venture capital funding and is  desirous of swapping its shares with that of a foreign company should be permitted to do so.   Similarly,  if an Indian company  having  venture funding and is desirous of issuing an ADR/GDR,  venture capital shareholders (holding saleable stock) of the domestic company and desirous of disinvesting their shares through the ADR/GDR should be permitted to do so. Internationally, 70% of successful startups are acquired through a stock-swap transaction rather than being purchased for cash or going public through an IPO.    Such flexibility should be available for Indian startups as well.   Similarly, shareholders can take advantage of the higher valuations in overseas markets while divesting  their holdings.

(C)Global investment opportunity for Domestic Venture Capital Funds (DVCF):  DVCFs should  be permitted to invest higher of 25% of the fund’s corpus or US $10 million or to the extent of foreign contribution in

Report of K B Chandrasekhar Committee on Venture Capital6

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