New Rules for M&A in MSMEs and Startups

May 18, 2023

India has recently implemented comprehensive revisions to the rules governing mergers and acquisitions (M&As) in the startup space. These updates aim to streamline and expedite the approval process, providing a faster and simpler route for M&As in the startup and MSME sectors. The corporate affairs ministry (MCA) has introduced clear time limits, provisions for deemed approval, and emphasized the importance of public interest. With these changes set to take effect on June 15, the startup sector is poised to experience significant growth and revitalization.

Accelerating Approvals: Reducing the Burden

The MCA has established a maximum time limit of 60 days for securing approval for mergers and acquisitions in the startup space. This definitive timeline provides businesses with certainty and facilitates effective strategic planning, removing ambiguity from the approval process.

Streamlined Process: Swift Decision-Making

Under the revamped rules, M&As in the startup and MSME sectors can now secure approval within 15 days, subject to certain conditions. This represents a significant improvement over the previous system, which lacked specific timeframes. By reducing approval timelines, the government aims to promote investment, stimulate innovation, and foster the rapid growth of startups and MSMEs.

Ensuring Timely Responses: Deemed Approval

In the event that the MCA does not receive objections from the Registrar of Companies (RoC) and official liquidators within a specified timeframe, deemed approval will be granted. This provision prevents delays and bottlenecks in the approval process, allowing M&As to proceed smoothly and efficiently.

Effective Communication: Views and Objections

The MCA has set a period of 60 days for placing its views before the adjudicating authority in response to objections received. This facilitates a comprehensive and transparent decision-making process, ensuring that all relevant perspectives are considered.

Confirming Public Interest: Finalizing M&As

When objections raised by the RoC and official liquidators are deemed unsustainable and the government determines that the merger or amalgamation is in the interest of the public, a confirmation order will be issued within 60 days. This step further supports the objective of expediting the approval process while prioritizing public interest.

Safeguarding Public Interest: The Role of NCLT

In cases where the government finds the M&A proposal to be not in the interest of the public, it must convey its objections to the National Company Law Tribunal (NCLT). This ensures that decisions are made with careful consideration of public welfare and prevents potentially detrimental M&As.

Fueling Growth: A Boost for the Startup Sector

The revamp of M&A rules in the startup space is viewed as a significant catalyst for the sector’s growth. With a faster and simpler process, startups can pursue strategic mergers and acquisitions more efficiently, unlocking opportunities for expansion, collaboration, and innovation.

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