Sudish Sharma November 9 2022 Key amendments to Foreign Exchange Management Act 1999 Lakshmikumaran & Sridharan | Corporate Finance/M&A - India Sudish Sharma Corporate Finance/M&A Real estate businessConvertible notesDefinition of "Indian company"SBEBsThe Foreign Exchange Management (Non-Debt Instruments) (Amendment) Rules 2022 entered into force on 12 April 2022. This article outlines the amendments they introduced.Real estate businessThe amendment rules specify that the following activities are not considered to be "real estate business":educational institutions;recreational facilities;city and regional infrastructure;townships; andreal estate broking services.Previously, these activities had not been expressly excluded from the term "real estate business".Convertible notesAn amendment has been made to rule 2(e) whereby the period of conversion of convertible notes has been extended. The new rules allow a start-up to issue convertible notes, which can be converted into equity shares of the company, within 10 years from the date of issue of convertible note, upon occurrence of specified events, as agreed. Previously, a period of five years was specified. This may impart greater flexibility for funding start-ups.Definition of "Indian company"Under the new rules, the definition of "Indian company" has been revised to include body corporates established under central or state acts within its scope for the purposes of the Foreign Exchange Management (Non-Debt Instruments) (FEM (NDI)) Rules 2019. It has further been clarified that a society, trust or any entity that is excluded as an eligible investee entity under the Foreign Direct Investment (FDI) Policy is not included within the meaning of the term "Indian company".SBEBsNew definitions for "share-based employee benefits" (SBEBs) and "subsidiary" have been introduced under rule 2. "SBEBs" have been defined as any issue of equity instruments to:an Indian company's employees or directors; oremployees or directors of a holding company, joint venture or wholly owned overseas subsidiary or subsidiaries who are resident outside India, pursuant to the SBEB scheme formulated by the Indian company and subject to certain specified terms and conditions.The term "subsidiary" has been assigned the same meaning as in the Companies Act 2013.An Indian company can now issue SBEBs under the FEM (NDI) Rules 2019 to various specified categories of employees or directors – this is not restricted to employees or directors of Indian companies.For further information on this topic please contact Sudish Sharma at Lakshmikumaran & Sridharan by telephone (+91 11 4129 98000) or email ([email protected]). The Lakshmikumaran & Sridharan website can be accessed at www.lakshmisri.com.