Govt increases timeline for startups for converting debt investment into equity to 10 years
- The government has increased the timeline for startups to convert debt investments (convertible note) made in the company into equity shares up to ten years. Earlier this limit was five years.
- An investor can invest in a startup through convertible notes, which is a kind of debt/loan instrument. In such cases the investor is given the option that if the startup performs well or achieves some performance milestones in future, the investor can ask the startup to issue equity shares of the company against the money that they had initially invested as loan/debt.
- Earlier the option of changing convertible notes into equity shares was allowed for up to five years from the day when initial convertible note was issued. Now that timeline has been extended to ten years.
Points to remember:
- What is the timeline allowed for startups to convert debt investments made in the company into equity shares?- 10 years
Source: economic times