Startups can issue convertible notes to foreign investors

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The Reserve Bank of India (RBI) has amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (TISPRO), through a notification on 10 January to allow startups to issue convertible notes to foreign investors.

startups issuing convertible notesThe key amendments are as follows:

Definition of “convertible note”

Regulation 2 of TISPRO has been amended to include the definition of “convertible note” as an instrument issued by a startup company showing a receipt of money as debt, repayable at the option of the holder, or an instrument which is convertible into a number of equity shares of a startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

Minimum investment amount

The minimum investment amount needs to be equal to or more than ₹2.5 million (US$37,000) receivable in a single tranche.

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The business law digest is compiled by Nishith Desai Associates (NDA). NDA is a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley and Munich. It specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.

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