CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Securities and Exchange Board of India (SEBI) has recently introduced a series of regulatory relaxations aimed at reducing compliance burdens in the stock market, encouraging more domestic listings, and facilitating increased foreign investments in Indian government bonds. A major focus of these reforms is to support companies that have previously moved their base overseas but now seek to return to India a trend known as reverse flipping.
Know About Flipping
Flipping, often referred to as creating an "externalised structure," is a process whereby the ownership of an Indian start-up or business is transferred to a company incorporated abroad. This typically includes the relocation of key assets such as intellectual property (IP), management control, and core decision-making processes, even though the operations, employees, and primary consumer base remain in India.
After flipping, the Indian business effectively becomes a subsidiary of the foreign holding company. This is a common practice among start-ups that aim to benefit from:
Tax incentives in countries like Singapore, the UAE, the United Kingdom, the Cayman Islands, and the United States.
Access to international capital markets and global investors.
Better valuations and branding opportunities.
Stronger protection for intellectual property in more developed legal systems.
Flipping is often motivated by the desire to scale quickly, secure global venture capital, and tap into investor bases that are more accustomed to supporting high-growth tech ventures.
About Reverse Flipping
Reverse flipping, also known as "internalisation," is the process through which start-ups that are currently headquartered overseas choose to shift their legal domicile back to India. This trend is gaining momentum as India emerges as a strong economic force with a maturing startup ecosystem and supportive government policies.
Key reasons for reverse flipping include:
Desire to list on Indian stock exchanges and attract domestic retail investors.
Favorable economic environment and investor-friendly reforms in India.
Expanding local consumer base and access to homegrown capital.
Increased confidence in India’s regulatory and tax framework.
Strategic alignment with India’s digital public infrastructure and startup support systems.
Reverse flipping helps companies re-anchor their operations in their country of origin, aligning with local growth trends and market dynamics.
Structures Used For Reverse Flipping
Re-domiciling a company to India is a complex process and involves careful consideration of legal, regulatory, and tax implications. The method chosen depends on several factors such as the size of the company, its current location, and the nature of its operations.
The two most common structures used for executing reverse flips are:
Inbound Merger:
This involves merging the foreign parent entity into the Indian subsidiary.
The Indian company becomes the surviving entity.
Governed by the Companies Act, 2013 and the Foreign Exchange Management Act (FEMA) regulations.
Requires approvals from the National Company Law Tribunal (NCLT) and the Reserve Bank of India (RBI).
Share Swap Arrangement:
In this structure, shareholders of the foreign entity are issued shares of the Indian company in exchange for their holdings.
The foreign company becomes a subsidiary or is dissolved, depending on the structure.
This is a tax-efficient option in many cases but requires compliance with FEMA and income tax laws.
SEBI’s Role In Supporting Reverse Flips
To facilitate reverse flipping and encourage companies to list in India, SEBI is:
Easing disclosure and compliance norms for start-ups seeking to get listed domestically.
Streamlining the IPO process to make it more accessible to tech-led and venture-backed companies.
Supporting integration of flipped entities into the Indian regulatory framework with greater clarity on reporting and taxation norms.
Promoting foreign portfolio investment (FPI) in Indian government bonds to strengthen domestic financial markets.
Conclusion
SEBI’s initiatives are part of a broader national effort to reclaim the value being created by Indian-origin startups that had previously shifted overseas. With India becoming an increasingly attractive destination for business, reverse flipping represents a significant opportunity to boost the domestic economy, deepen the startup ecosystem, and build trust in Indian capital markets.
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