The ODFC FEMA Helpdesk provides guidance related to startup funding compliance from foreign investors in India under the framework of the Foreign Exchange Management Act, 1999 (FEMA).
The ODFC FEMA Helpdesk aids startups in navigating FEMA regulations related to foreign funding. It helps in filing returns, understanding compliance requirements, and collecting proof in case of funding disputes or scams.
Here is a basic points synthesized about FEMA and its application for startups in India. Foreign Direct Investment (FDI) in startups can be made through two primary routes:
1) Automatic Route: No prior government approval is required if the sector is under the automatic route as per the consolidated FDI policy by DPIIT.
2) Approval Route: Government approval is mandatory for investment in sectors not covered under the automatic route or in certain sensitive cases.
3) Investments from countries sharing a land border with India require prior government approval irrespective of the sector.
Non-resident entities can invest in Indian startups. Permissible instruments for foreign investment include compulsorily convertible preference shares and compulsorily convertible debentures. Instruments that are optionally convertible or non-convertible are regulated under External Commercial Borrowings (ECB) guidelines instead of FEMA FDI rules. India has a liberal FDI policy, but sector-specific restrictions and caps must be checked before accepting foreign investment.
An example of an international funding scam involving startups is the "World Startup Convention" (2023) scam, which was promoted as the world's biggest startup funding festival. Additionally, common international startup funding scams include fake investors who use inflated promises and fake LinkedIn identities to extract fees or sensitive information, fake VCs impersonating legitimate funds, fake due diligence calls to harvest data, and predatory convertible debt offers with hidden harmful terms. These scams often involve foreign or international sources that claim to invest in or support startups but aim mainly to defraud founders.
🏡 ODFC.app
