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Funding Compliance, Healthcare Startup

The growth of the IT sector in India has led to the emergence of Healthcare Tech sector in India. And, as a part of this immense development, to scale up, entrepreneurs look forward to raising funding for healthcare startup from an external source. This article is dedicated to founders in this sector finding answers to ” How can I raise funding for my healthcare startup?”

You can raise funds through 3 routes:

  1. FDI
  2. Venture Capital investment
  3. Borrow money

FDI Route:

  • Foreign investment into India is governed by the Foreign Exchange Management Act, 1999 (“FEMA”), the rules and regulations made by the RBI, and the Industrial Policy and DIPP.
  • 100 percent FDI is permitted in most sectors under the automatic route (no approval of FIPB”)
  • Hospital sector and in the manufacture of medical devices – 100 percent FDI allowed under automatic route
  • Pharmaceutical sector – Under the automatic route, FDI is permitted up to 100 % in Greenfield projects and 74% in Brownfield projects and FDI beyond 74% in Brownfield projects requires FIPB approval.
  • The cap on FDI in the insurance sector has been increased from 26 percent to 49 with the directive that the ownership of the insurance company be retained in Indian hands.


Venture Capital Investment Route:


  • All venture capital investment by entities registered with the Securities Exchange Board of India (“SEBI”) as foreign venture capital investors.
  • It is not mandatory for a private equity investor to register as a Foreign Venture Capital Investor (“FVCI”) under the FVCI regulations 11, there are some significant advantages to be gained by registering as an FVCI.
  • Registered FVCIs benefit from free entry and exit pricing and are not bound by the pricing restrictions.
  • FVCI can opt for both QIP route and QIB route in IPOs.
  • FVCI can opt for Lock-in options in case of IPOs.


Borrow Money Route:

Before entering the lending process, analyze the situation first:

  • When money lender is a foreigner:  These guidelines issued by the Reserve Bank of India (the RBI), regulate not only the returns (prescribed all-in-cost ceilings pegged to 6 month LIBOR cover fees, interest fees etc. except pre-payment fee, commitment fee and fees payable in Indian Rupees) but also the tenure and amount of the loan, the sectors and purposes for which loan can be availed, the type of security and so on. Sometimes approval of the authorized dealers and in some cases that of the RBI may be required.
  • Transaction costs: Stamp duty (and sometimes registration duty) plays a significant part in the choice of security, properties (immovable or movable and location of immovable property) and place of execution. It differs across states in India and can be very significant.
  • Money advanced against the provisions of Contract Act and Existing Laws: any contract drafted to lend money should be in accordance with Provisions of Contract Act, sometimes due to Ignorance, money is loaned to a minor or for purposes barred by Indian Law. Recovery of money in cases is extremely difficult.
  • Taxation Issues: Loan money received has no tax availed on them but when interest is charged, the interest is liable to tax.

     To Ensure Recovery of Your Money:

  • There are three easy steps to ensure the recovery of your Money-
  • Promise Note: A promissory note is an acknowledgment to pay back debt (on demand or otherwise) and may include some simple terms and conditions. If the aim is to include specific or detailed clauses, it is advisable to enter into a loan agreement.
  • Loan Agreement: Unlike a promissory note, a loan agreement can be modified. An amendment clause needs to be incorporated in the agreement. It enables the parties to amend the document on mutually-agreed terms and conditions. Thus, when more Complications are Involved
  • Money Lender License: If Money Lending is your Business and major part of your Income comes through it you need to get Money Lenders Registration from Local Authorities. Constitution grants power to State Governments to draft Legislations as to Money Lending. Some of them also impose restrictions as for rate of interest, and procedure to be followed and such licenses provide security in legal disputes.

 Enforcement Remedies: Given the overstretched judicial system in India where recovery proceedings are typically time-consuming, you can approach the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, this represents a significant advantage. Some have tried to work around this through inter- creditor arrangements.

Wazzeer is vouched by Entrepreneurs as the most reliable Legal and Accounting Partner. We would be super excited to help you. Let’s Connect! 🙂

BTW, This blog might interest you Every Venture Wanting to Raise Funds, things you need to know


Business Registration, Healthcare Startup, Licenses, Start up Lessons
Economists can just turn the table, don’t they? When reports about Healthcare sector expecting to touch $158.2 billion by 2017 came up, entrepreneurs that always wanted to do something big in this sector felt unstoppable. Yes, you got the point! This blog is for all you fans that has been requesting me to write on the e-healthcare sector. So, let’s get on with the basics of starting healthcare business in India.
  1. Business Registration:
This is a must for startups in this sector and probably the first step for starting healthcare business in India. Since there are multiple players involved, raising funds is another major thing to be concerned about, therefore registering it as a PVT. LTD. Company makes sense for most entrepreneurs.
  1. Rules under the IT Act:
  • Data Protection: The patient must be informed that the data is being collected, purpose behind the same and whether it would be transferred to any third parties, along with the contact details of the agency collecting the information.
  • Follow the international standard IS/ISO/IEC 27001 on Information Technology
  • Appoint a ‘Grievance Officer’, whose contact details are to be published on the website.
  1. Privacy Policy:
It is mandatory for startups ( healthcare business in India ) to have a privacy policy in place and published on its website. Although a ‘privacy policy’ is technically a legal document, great effort should be made to craft a document that is both accurate and easy to understand.  
  1. Not to miss OSP Regulations:
If you are planning on starting healthcare business in India that will have Application based Services which includes telemedicine services, you will be required to be registered as an ‘Other Service Provider’  (OSP) with the Department of Telecommunications.  
  1. Abide by the rules of The Drugs and Cosmetics Act (this one is for e-pharmacies)
  • All drugs must be sold under a license. The Rules under this act clearly lay down which drugs can be sold only on the production of a prescription issued by a registered doctor.
  • Drugs which can be sold only on prescription are stated in Schedules H, H1, and X.
  1. The Drugs and Magic Remedies Act, 1954:
If you are going to send Advertisements (promoting anything) to registered medical practitioners and chemists after starting healthcare business in India, you can do only if your documents bear the words ‘For the use only of registered medical practitioners or a hospital or a laboratory’ at the top of the document.  
  1. Unsolicited Commercial Communications Regulations, 2007 and Telecom Commercial Communication Customer Preference Regulations, 2010:
Sending unsolicited commercial communications over voice or SMS are prohibited. However, there is no legal bar over sending transaction messages after starting healthcare business in India.
  1. The Clinical Establishments Act, 2010 (this one is for startups that have clinics as well): Registration with the relevant authority and conform to the minimum standards as prescribed under the act.
  1. Patent:
  • A computer program ‘per se’ is excluded from patentability under Section 3(k) of the Patent Act, 1970., provided it meets the other requirements of CRI.
  • Patents for software programs have been issued in the past where it involves a hardware component as well. If the technology/software fulfils these requirements, you could file for a patent and receive protection if the same is granted. 
  1. Copyright:
  • Software can be protected as a literary work under copyright law.
  • The idea would have to be expressed in some form of medium before it can be protected.
  • Clinical guidelines and data could be protected under the Copyright Act, only if it is expressed in some form of medium.
A2Z of starting a Healthcare Startup  
  1. Design:
Design protection would be the Graphical User Interface (GUI) of applications and the design of the devices and this can be protected under the Designs Act.  
  1. Trademark:
The ‘mark ‘ an e-Health application or device could be registered as a trade mark under the Trademark Act. 
  1. Trade secrets: You can protect the trade secret by signing a Non-Disclosure Agreements with employees to avoid information going out of your roof.
  1. Indirect Taxes:
  • Service tax is 14% payable by the service provider.
  • Value Added Tax (VAT) is levied on the sale of goods within a state and rates vary widely anywhere from 0%-1% to 4%-12.5%.
  • Central Sales Tax is imposed on the sale of goods during interstate trade or commerce.
  1. Corporate Tax
  • Indian residents are taxed on their worldwide income
  • Non-residents are only taxed on income arising from sources in India. 
  1. Follow the standards of NeHa:
NeHA is a promotional, regulatory and standards setting organization to guide and support India’s journey in e-Health. 
  1. Terms of service:
You are required to have the Terms of services document in place, that has all the required information about services like Age verification and other rules.  
  1. Payment Gateway Compliance:
It is mandatory for every ecommerce startup, on a similar line e-healthcare startups should consider doing the same.  
  1. Abiding International jurisdiction:
Every country has its own set of compliance that businesses outside the country should follow.  
  1. Cofounders Agreement:
Importance of having this conversation (or more likely, conversations) early on, explain why a founders? agreement is a valuable tool to maintain a healthy co-founder relationship. It is like defining your marriage with the fellow co-founder.  
  1. License Agreement:
Licensing agreements cover a wide range of well-known situations. For example, a retailer might reach agreement with a professional sports team to develop, produce, and sell merchandise bearing the sports team’s logo. On a similar note, when you provide license to doctors to use your app, it is important that you have a license agreement to support the same.  
  1. Contracts and Agreements:
To protect your relationship with partners or doctors on a long run. The doctors should be able to present the necessary credentials and certification and all these action items included in the contract or agreement would assure quality.  
Startup entails complex procedures and many bureaucratic hurdles, entrepreneurs are better off using professional services. Hiring a virtual lawyer and virtual accountant can save time and help ensure that the process goes smoothly.

For any Legal and Accounting support, Happy to help you, let us talk at Wazzeer.