The Indian government has introduced several amendments to specific Acts over time, and these amendments are in line with a variety of other policies, which include Startup India and Digital India and are intended to promote innovation and business development. In addition to these reforms, the government’s Budget 2025 proposals are expected to further bolster the startup ecosystem by offering incentives for innovation, reducing tax burdens, and simplifying regulatory processes. These initiatives align with the government’s broader goals of fostering entrepreneurship, making India a hub for startup activity. This article examines the recent key amendments to company law and LLP law, focusing on their impact on Indian startups.

Key Amendments and their Impact on Startups

• LLP (Third Amendment) Rules, 2023: Enhancing Transparency and Compliance

To improve accountability and transparency in LLPs, the Ministry of Corporate Affairs (MCA) unveiled the LLP (Third Amendment) Rules, 2023, in October 2023 (Click here to read our article on the Amendment Rules).[1] A notable modification requires each LLP to maintain Form 4A partner register at its registered office. Following the publishing of the Gazette notification, the existing LLPs had 30 days to comply with the amendment, which fosters investor confidence and aids in regulatory adherence.

Declaration of Beneficial Interest in LLPs

The 2023 amendment introduced provisions for partners to declare beneficial interests in contributions of the LLP. Partners holding such interests must submit declarations in Form 4B or Form 4C, as applicable. Upon receiving these declarations, the LLP is obligated to record them in the register of partners and file a return in Form 4D with the Registrar of Companies within 30 days. This measure aligns LLP regulations with those of companies, promoting greater transparency in ownership structures. 

LLP (Significant Beneficial Owners) Rules, 2023

In order to further improve transparency in LLP ownership structures, the MCA introduced the LLP (Significant Beneficial Owners) Rules, 2023. These rules closely mirror the provisions applicable to companies under the Companies (Significant Beneficial Owners) Rules, 2018, ensuring that LLPs disclose the details of individuals or entities holding directly or indirectly, 10% or more of the LLP’s contribution, voting rights, or exercising significant influence or control over decision-making, by filing a return in Form LLP BEN-2 and maintaining register of partners.

These provisions bring LLPs in line with corporate governance standards applicable to companies, thereby increasing transparency and helping prevent fraudulent ownership practices.

Recently, recognising the compliance burden on businesses, particularly startups and small LLPs, the MCA provided a relaxation in filing deadlines for:

1. 1. Form LLP BEN-2 (Declaration of Significant Beneficial Ownership) wherein the deadline for initial filings has been extended, giving LLPs additional time to report SBO details and no late fees were levied until May 15, 2024.
   2. Form LLP 4D (Filing of Beneficial Interest Declarations) wherein the MCA has granted LLPs an extension for submitting Form 4D, allowing them to comply with the new disclosure requirements without facing any penalties until May 15, 2024.

These relaxations are aimed at ensuring a smooth transition to the new compliance framework while reducing the regulatory burden on LLPs, particularly those in the startup ecosystem.

Appointment of Designated Partner for Disclosures

 To streamline the process of sharing information regarding beneficial interests, the amendment rules mandate that LLPs appoint a designated partner responsible for furnishing such information to the Registrar or any authorised officer. Accordingly, the LLP must specify one of the existing designated partners already in charge of compliance activities to furnish information regarding beneficial interest. Details of this designated partner must be provided in Form 4.  This requirement ensures accountability and facilitates efficient communication with regulatory authorities.

• Extension of E-Filing Deadlines

The MCA extended the deadline for electronically completing the filing of LLP Form 3, Form 4 and Form 11[2] to November 30, 2023, without additional charges for delay, in recognition of the difficulties experienced by LLPs, particularly startups. This extension lessened the immediate compliance load and improved resource allocation. 

• Amendments to the Definition of “Related Party”

Effective from April 1, 2023, the definition of “related party” was expanded under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Sixth Amendment) Regulations 2021. Prior to the LODR Amendment Regulations, the definition primarily included promoters, directors, and entities under common control. However, the amendment broadened the scope to include:

1. 1. Any person or entity holding 10% or more of the equity shares in a listed entity, either directly or indirectly through beneficial interest, during the preceding financial year (reduced from the earlier threshold of 20%).
   2. Any entity that is part of the promoter group, thereby ensuring that transactions with such entities are subject to disclosure and approval norms.

This expansion aimed to enhance corporate governance, improve transparency, and prevent conflicts of interest in related party transactions (RPTs). Additionally, startups seeking to procure public funds through an SME IPO should consider compliance with SEBI LODR obligations, especially for any reorganization and emergence of a new promoter and/or shareholder base, then they would need to consider these compliance disclosures under the related party transactions. This amendment necessitates that startups identify and disclose such relationships, ensuring greater transparency in financial dealings and adherence to corporate governance norms. 

• Fast-Tracking Mergers of Startups Incorporated Outside India

In September 2024, a pivotal amendment was made to Rule 25A of the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, introducing Sub-rule (5).[3] This provision expedites the approval process for a startup incorporated outside India to merge with its wholly-owned Indian subsidiary by eliminating the need to obtain approval from the National Company Law Tribunal (NCLT). Further, based on the amendment of Rule 25A, compliance rules have been streamlined by the Central Government for enabling reverse flipping as well.

By simplifying this procedure, the government offers companies greater flexibility and opportunities to enter the Indian market, which is particularly advantageous for foreign startups aiming to establish a presence in India efficiently. 

This regulatory reform is said to have reduced the time for reverse flip mergers from 12-18 months to approximately 3-4 months.[4]

• Companies (Prospectus and Allotment of Securities) Amendment Rules, 2025

In February 2025, the MCA amended Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014[5], granting a compliance extension for certain private companies. Specifically, private companies (excluding producer companies) that were not classified as small companies as of March 31, 2023, now have until June 30, 2025, to comply with the provisions of sub-rule (2). The Companies Act, 2013 defines a “small company” based on the thresholds of INR 4 crore paid-up capital and INR 40 Crore turnover, respectively, as of 2024. However, many early-stage start-ups, while still qualifying as start-ups under relevant criteria, often surpass these small company limits due to increased revenues or the infusion of venture capital and as a result, they lose their small company status and become subject to Rule 9B(2), which mandates the dematerialisation of their securities. However, with the recent extension, startups now have time until June 30, 2025, to comply, providing them more time to align with regulatory requirements and easing their compliance journey.

While concluding with these amendments, it is also notable that the Union Budget for 2025-26 extended the timeline for tax benefits available to startups under Section 80-IAC of the Income-tax Act, 1961. This allows eligible startups to claim a 100% deduction on profits for three consecutive assessment years out of ten, beginning from the year of incorporation.

The amendment extends the tax deduction benefit under Section 80-IAC for eligible startups by five years, allowing newly incorporated start-ups to avail of the deduction until April 1, 2030, instead of the previous cut-off of April 1, 2025. This extension provides businesses with additional time to operate while benefiting from tax breaks during their crucial early years when cash flow is typically limited, as every rupee saved can be reinvested into the business, and could be used to hire more staff, or dedicate towards launching new ideas in the market. This shows the government’s deliberate approach to empower the startup space rather than just offer support to relieve the financial constraints during a critical growth phase.  There is an ongoing commitment to help fulfil new businesses’ dreams by making sure that future businesses have the financial capacity to thrive and compete in the global market.

Opportunities for Startups

These amendments encourage startups to adopt a proactive compliance culture, which can reduce future risks and uphold confidence among domestic and international investors. The streamlined processes, reduced penalties, and emphasis on digital transformation empower startups to focus on innovation and growth.

Moreover, the expanded definitions, simplified compliance processes, and cost savings enhance the ease of doing business, enabling startups to scale operations seamlessly. Startups in tech-driven sectors can particularly leverage these amendments to attract investments and navigate the regulatory landscape more effectively.

Way Forward

The amendments to company law and LLP Law mark a significant step toward building a friendly regulatory environment for entrepreneurs in India. These changes help to resolve compliance issues and promote digital transformation, indicating the government’s commitment to boosting entrepreneurship.

To effectively benefit from these improvements, companies must invest in legal awareness, professional counsel, and compliance technologies. With ongoing efforts to raise awareness and additional reforms in the works, the Indian Startup Ecosystem is poised to achieve extraordinary success in the coming years.