The government has extended the timeline up to ten years for startups to convert debt investments made in the company into equity shares, a decision which is likely to give relief to budding entrepreneurs to deal with the impact of the Covid-19 pandemic, according to a press note of the DPIIT. 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 the initial convertible note was issued. Now that timeline has been extended to 10 years.
