Lesser paperwork for start-ups as govt does away with cash flow statements

Industry experts are unsure of the number of startups it might benefit from this

Start-ups in the country could cut administrative costs, with the government allowing them to forgo cash-flow statements. However, experts are sceptical about how many companies would benefit from this, as few have managed to fit the government’s definition of a start-up.

A recent notification of the Ministry of Corporate Affairs (MCA) has amended the exemptions to the Companies Act to accommodate start-ups. Essentially, these amendments aim to reduce paperwork for smaller companies that operate on a tight budget and might not have the resources for extra paperwork. 

“These companies will not have to prepare cash-flow statements. They, however, have to continue providing details,” a senior MCA official said. 

The ministry has also brought down the number of required annual board meetings to two from four. 

According to the amendment, a start-up has to submit its annual returns vetted by a company secretary or a director. Earlier, only a company secretary could do so. 

Industry insiders, however, want to wait and watch how far this would be effective.

“It is a good measure, but a lot depends of the government’s definition of start-ups. As of now, only a small set of companies fall into the category. The move would benefit those who have made the cut,” said Harish H V, partner, India leadership team, Grant Thornton India. 

The Companies Act recognises a firm as a start-up if its annual turnover for any of the financial years since incorporation is less than Rs 25 crore. Providing a breather to struggling start-ups, the government on Friday notified provisions for fast-track resolution of insolvency proceedings. Under this code, the proceedings would be completed in 90 days. 

According to industry data, about 95 per cent of start-ups are unsuccessful ventures and wind down within two year of starting operations. 

However, liquidation of these companies is painful process, taking at least about five years and causing a major financial crunch. As opposed to this, the code for insolvency proceedings mandate a firm’s restructuring or exit within 180 days from the day of admission.

The adjudicating authority, which is the National Company Law Tribunal (NCLT), may extend the period of 90 days by 45 days. 

Unlisted companies with total assets up to Rs 1 crore can use this section of the code for faster resolution. This move will benefit the start-up community in a big way.