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Sweet Equity In Australian Startup


09-Aug-2025 (In Corporate Law)
Hello, I am a freelancer providing CTO services to an Australian IT product company, which is offering me 5% sweet equity for my work. My understanding: Since the equity is for services and not purchased with money, prior RBI/FEMA approval may not be needed. The company is a low-valuation startup but plans fundraising soon. I plan to sign the shareholder agreement shortly. I will declare this annually under ITR Schedule FA as a foreign asset. Please advise: Is my FEMA/RBI understanding correct? Any other legal, tax, or compliance points I should consider? Regards,
Answers (2)

Answer #1
909 votes
Even if equity is received for services, it qualifies as acquisition of foreign security under FEMA ODI rules, so reporting via Form ODI through your AD bank is required within 30 days. Keep a formal agreement and valuation proof. Disclose annually in ITR Schedule FA and pay tax on dividends/capital gains. Ensure compliance before fundraising to avoid future scrutiny. I can assist in drafting and handling FEMA/tax filings.
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Advocate Adarsh Kumar

Adv. Adarsh Kumar

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Answer #2
557 votes
1. FEMA/RBI Approval: • Since the 5% equity is being allotted to you against services (and not purchased for cash remittance from India), it generally does not trigger the usual overseas direct investment (ODI) compliances under FEMA. • In such cases, prior RBI approval is typically not required, provided the allotment is in accordance with the local laws of the host country (Australia in this case).
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Advocate Rohan Rai

Adv. Rohan Rai

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