On February 19, the DPIIT extended the period during which a company could be considered a startup from five years after incorporation, to 10 years. The ministry of corporate affairs also issued a notification in line with DPIIT wherein, startups can issue sweat equity of up to 15% of their paid-up share capital.
The notification amending the Companies (Share Capital and Debentures) Rules, 2014, addressed the long-standing issue of updating the definition of a startup.
These measures by the Ministry of Corporate Affairs are expected to assist startups and give a boost to Startups ecosystem in these trying times of COVID. ESOPs are a critical compensation component in most startups, as a way to retain employees in light of the larger growth picture of the company. But current times have resulted in forced lay-offs across startups, most of which are loss-making and hence can’t bear expensive salary bills. With government extension on ESOPs, startups could look at this as an option to retail employees sans salary.