Thread: Start-up Comedy of Errors: RBI & AD Banks Hold the Punchline
My recent review of a pre-August '22 structure got me tangled in a hilarious mess created by RBI & AD Banks ignoring this elephant in the room.
Buckle up!
The Setup:
• Indian & overseas investors poured money into a holding company abroad, with an Indian subsidiary.
• Some Indian investors invested directly in the Indian company, hoping for sweet returns from the holding company.
• And guess how this whole thing was built? Gifting by founders, of course! as that was the only option available at that time
The Plot Thickens:
• An Indian AIF wants to buy shares from these investors, both Indian & foreign.
• But here's the twist: SEBI needs approval for buying overseas shares, no matter who's selling.
♀️
• Even if we forget the AIF, any resident buyer needs to file an ODI form with an AD Bank for buying from another resident.
• Except AD Banks are like, "Nope, not for structures built on gifting!" ♀️
The Punchline:
• Resident buyers are stuck in a Catch-22:
buy from residents (AD Bank says no), buy from foreigners (SEBI / AD Bank says no).
The only escape for resident investors? Sell to foreigners!
• Also - Residents can't even invest fresh in the overseas company thanks to the gifting route.
It's like a one-way trip with no return ticket. ️
• So the only option left is some convoluted restructuring involving parent company buyouts and fresh issues at the Indian subsidiary. Cue the paperwork avalanche!
The Serious Side:
This isn't just a laugh riot, folks.
It's a big problem in the face for countless pre-August '22 startups. They're trapped in this regulatory limbo, unable to exit or grow.
The Call to Action:
• Someone in authority needs to wake up and smell the coffee!
We need a clear path out of this mess, even if it involves some (painful) adjustments.
• A clean-up process, maybe with some penalty fees, is better than leaving these startups in purgatory.
• And before the taxman joins the party, let's figure out a way to make this restructuring tax-neutral. Let's not add fuel to the fire!
Tag anyone who holds the key to unlocking this comedy of errors.
#TwitterThread #Startups #India #RBI #SEBI #ADBanks #Gifting #Investment #Regulation #ComedyOfErrors #CleanUp #Restructuring #Tax #CallToAction
You can read the unrolled version of this thread here: typefully.com/Akhil_fca/o7ucFaQ