Reserve Bank of India (‘RBI’) has, by way of notifications dated April 28, 2016 and May 20, 2016, made the following amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000:

i. The term ‘startup’ has been defined to mean a private limited company / limited liability partnership, incorporated within the preceding five years, with an annual turnover not exceeding Rs 25 crores (approximately US$ 3.7 million) in any preceding financial year, working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property, provided that such entity is not formed by splitting up or reconstruction of an existing business;

ii. Schedule 6 has been amended to permit foreign venture capital investors (‘FVCI’) registered with Securities and Exchange Board of India (‘SEBI’) to invest in: (a) equity, equity-linked instruments or debt instruments issued by startups, irrespective of the sector of such startup; (b) units of a registered Category I Alternative Investment Fund (‘Cat-I AIF’) or units of a scheme or a fund set up by a Cat-I AIF; (c) equity, equity-linked instruments or debt instruments issued by an unlisted Indian company engaged in specified sectors;

iii. A new Regulation 10A has been inserted which provides for the following:

• In case of transfer of shares between a resident and a non-resident, not exceeding 25% of the total consideration can be paid by the buyer on a deferred basis, for which an escrow arrangement may be made, for a period not exceeding 18 months from the date of the transfer agreement; and

• Even if the total consideration has been paid, the seller may furnish an indemnity for an amount not exceeding 25% of the total consideration, for a period not exceeding 18 months from the date of payment of the full consideration.

iv. The total consideration finally paid for such shares must comply with applicable pricing guidelines.