Regulatory framework for large startups soon
NEW DELHI : The corporate affairs ministry will examine the need for a new regulatory regime for large startups that have grown beyond a certain size to ensure their governance systems become more robust without compromising on ease of doing business, a person familiar with the development said. A panel of experts advising the ministry—company law committee—will examine this shortly, the person said on the condition of anonymity. The move comes at a time many Indian startups have achieved scale, have become hugely valuable and have raised large amounts of private capital, but their management capability to handle the governance and compliance obligations in line with their size has raised concerns.
The government wants the large startups to measure up and ensure good governance through a tailored regime while not posing any fresh compliance requirements for small startups. “When a startup grows beyond a threshold that can be specified, we could have extra (compliance) requirements. This is not for new startups.
Such requirement cannot be for all," said the person. The idea is to balance the need for better internal controls in large startups with ease of doing business considerations. “The capital coming into startups may be private, but in the case of large startups, it can have a systemic impact," said the person.
In the case of small companies, any potential harm to the system due to failure or governance lapse would be minimal, and therefore, a lighter regime will be suitable for them. The regulatory regime should be framed in such a way that it considers the likelihood of harm or damage (to the system) and also a cost-benefit analysis of the regulation, said the person. Under the Companies Act, private limited
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