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RBI makes its move, allow startups to operate foreign currency accounts

RBI, in a welcome move on start-up front, announced some new policies as it had promised under Raghuram Rajan’s regime, to help the start-ups flourish in the country. RBI, which is responsible for country’s monetary policies, announced that it will allow start-ups with subsidiary units in foreign country to open foreign currency accounts to pool the foreign exchange earnings.

A foreign currency account is account denominated in a currency other than home currency and can be maintained by a bank in home country or by a bank in the foreign country. After RBI’s notification, start-ups operating in India will also be allowed to open a foreign exchange account that will be maintained by the Indian branch or the subsidiary unit operating in foreign country.

“In line with the Government of India’s start-up initiative, it has been decided that an Indian start-up, having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to the account foreign exchange earnings out of exports/sales”, RBI said in a notification. It further said in its notification that the subsidiary is allowed to pool its receivables from transactions with residents in India as well with foreign nationals in the foreign currency account. The account has to be opened in the name of the start-up itself. It has also allowed to receive or pay sums of up to $10,000 USD through online gateways. The time period allowed for such accounts to transfer the funds that the parent company has realised is 9 months.

RBI has also allowed start-ups to issue shares based on sweat equity. Sweat equity, in layman’s term, is the value added to an enterprise with one’s hard work and toils and are non-monetary in nature. It has also allowed to issue shares in lieu of payment to be made on part of the investment company as long as it doesn’t need any prior permissions.

These new guidelines have been issued in wake of problems faced by the start-ups in making and realising payments. This will allow the start-up an ease in doing business which was the primary target of RBI behind this step.

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