Why in the News?
SEBI has introduced key regulatory relaxations to ease IPO norms and incentivize startups to shift their legal base back to India through reverse-flipping.
About Reverse-Flipping:
- Reverse-flipping refers to the process by which Indian startups that were earlier incorporated abroad shift their domicile back to India, making India their legal and operational headquarters.
- It allows Indian companies to access domestic capital markets, reduce compliance complexity, and align with the evolving global tax and regulatory environment.
- This shift helps startups tap Indian stock exchanges, reduce reliance on foreign jurisdictions, and benefit from a favorable Indian regulatory ecosystem.
Types of Reverse-Flipping
- Share Swap Arrangement:
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- In this structure, shareholders of the foreign parent company exchange their shares for shares in the Indian subsidiary.
- This process may trigger capital gains tax under the Income Tax Act, 1961, especially for Indian shareholders.
- Inbound Merger (Cross-Border Merger):
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- The foreign parent company merges with its Indian subsidiary, with the Indian entity becoming the surviving legal structure.
- If all conditions under the Foreign Exchange Management Act (FEMA), the Companies Act, 2013, and National Company Law Tribunal (NCLT) are met, this merger route can be tax-neutral.
Key Features:
- Domestic Listing Access: Startups gain access to Indian IPO markets and valuations.
- Simplified Compliance: Reduced legal and regulatory complications from operating across jurisdictions.
- Investor Incentives: SEBI now allows foreign venture funds and AIFs to be counted towards minimum promoter contribution in public issues.
- ESOP Relaxation: SEBI has allowed promoters/founders to retain Employee Stock Option Plans (ESOPs) granted one year prior to the filing of the Draft Red Herring Prospectus (DRHP).
- Capital Market Boost: The move supports India’s goal to become a global startup and financial hub by encouraging reverse-flipping.
- Tax & Legal Alignment: Shifting domicile can help startups comply better with Indian tax and business laws.
Note:Employee Stock Option Plans (ESOPs) are structured benefit schemes that grant employees the right to purchase shares of their company at a predetermined price—known as the exercise price—after completing a specific period. |
| [UPSC 2025] Consider the following statements:
Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders. Statement II: Bondholders are lenders to a company whereas stockholders are its owners. Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company. Which one of the following is correct in respect of the above statements? (a) Both Statement II and Statement III are correct and both of them explain Statement I * (b) Both Statement I and Statement II are correct and Statement I explains Statement II (c) Only one of the Statements II and III is correct and that explains Statement I (d) Neither Statement II nor Statement III is correct |
