With a view to push entrepreneurship and for ease of doing business, the Government has notified certain amendments in Companies (Shares and Debenture) Rules. It is now possible for a company to issue up to 74% of its voting capital in the form of shares with differential voting rights (DVR). To make it easier for a company to issue DVRs, the requirement to have distributable profits for 3 years has been dispensed with. This amendment comes on the heels of the framework notified by the SEBI for DVRs by listed entities. The change appears to be aimed at offering flexibility to promoter driven start-ups, particularly in the tech space, to raise capital without ceding control. Coupled with the DVR Framework of the SEBI, this amendment may enable the start-up founders to retain control in the case of IPOs, though in view of restrictions on converting existing capital into DVRs, it is unlikely that the founders of start-ups on the verge of IPO will be able to take the benefit of the move. Further, addressing a long-standing demand of the start-up community, companies have now been permitted to issue ESOPS to promoters and directors holding more than 10% equity for a period of 10 years from incorporation.

Further, Government’s clarification on the concept of ‘appointed date’ in schemes of arrangement, sets at rest the confusion regarding the permissibility of event based ‘appointed date’ under the Companies Act, 2013. With the clarification issued by the Ministry of Corporate Affairs on section 232(6) of the Companies Act, 2019, it is now clear that companies may provide for an appointed date in the schemes which shall be deemed to the acquisition date for the purposes of Ind AS-103 (Business Combinations). The appointed date may be a specified calendar date, or a date linked to a specified event, which event will need to be clearly spelt out in the scheme. However, where there is significant ante-dating (i.e. of more than one year) of the appointed date from the date of the filing of the petition, the company will have to justify the same in the petition. The clarification on the event based appointed date also opens up the possibility of such appointed date being a prospective date, instead of a retrospective date in all cases. This now brings certainty for the scheme-based mergers and acquisitions, and may help the companies and consultants devising such schemes.