Corporate Law Reforms Yield Benefits for Investors, but Raise Questions About Remaining Loopholes

Government Introduces Corporate Laws (Amendment) Bill to Enhance Ease of Doing Business

The Government of India has introduced the Corporate Laws (Amendment) Bill in the Lok Sabha, which has been referred to a Joint Parliamentary Committee for detailed examination. The Amendment Bill proposes amendments to select provisions of the Companies Act, 2013 and the Limited Liability Partnership Act, 2008, largely drawing from the recommendations of the Company Law Committee's Report prepared in 2022.

Enhancing Operational Flexibility and Decriminalising Procedural Non-Compliances

The stated objective of the Amendment Bill is to enhance ease of doing business by providing greater operational flexibility and decriminalising certain procedural non-compliances. Several of the proposed changes have particular relevance for India's venture capital ecosystem. This article examines the Amendment Bill from a venture capital perspective, highlighting the areas where longstanding industry concerns have been addressed, as well as those where the Bill represents a missed opportunity to introduce meaningful reforms aligned with evolving investment and deal-making practices.

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Key Provisions Addressed

Reduced Timeline for Mergers/Restructuring and Lower Threshold of Approvals for Fast-Track Mergers

Mergers and restructuring are one of the ways of exit typically found in mature start-ups. In certain cases, mergers/restructuring are also adopted as a manner of strategic sale for certain tax exemptions available under relevant tax laws. The Amendment Bill seeks to address the bottleneck of procedural fragmentation by clarifying that all applications relating to a merger or restructuring must be filed before the NCLT having jurisdiction over the transferee or resultant company.

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The proposed amendments are likely to allow majority financial investors to steer merger outcomes in line with negotiated exit rights, aligning the fast-track merger process more closely with other VC-driven exit mechanisms documented in transaction agreements.

Relaxation on Restriction on the Number of Buy-Backs

Buy-backs of shares have increasingly emerged as a viable exit mechanism for early backers and angel investors in Indian start-ups. The Amendment Bill seeks to relax the restriction on the number of buy-backs by permitting certain categories of companies (as may be notified by the Central Government) to undertake up to two buy-back offers within a single financial year.

The ability to conduct multiple buy-backs within a year would offer meaningful flexibility to start-ups seeking to rationalise their capital structure.

Missed Opportunities

Advisory Shares Remain Conspicuously Unaddressed

Advisory shares are widely used to incentivise experts and angel or high-net-worth investors who contribute significantly through strategic inputs, networks, and relationships. However, CA 2013 offers no clear statutory mechanism to accommodate such arrangements. The absence of any enabling framework for the issuance of advisory shares to non-employees represents a missed opportunity to provide much-needed legislative clarity.

No Space Yet for Special Purpose Acquisition Companies (SPACs)

Special Purpose Acquisition Companies (SPACs) serve as acquisition vehicles that raise capital through public listings with the objective of acquiring identified target companies. Despite prior policy recommendations and the existence of a domestic SPAC framework within IFSCs, the Amendment Bill remains entirely silent on SPACs. This omission reflects a continued policy hesitation to facilitate SPAC structures in mainland India and represents a missed opportunity to modernise India's capital-raising and listing framework in line with global market practice.