Raising Capital is the key to scale up the operations of the business & for expansion. Here is the solution, how start up has to do compliance procedures while raising funds for the business.
Below is the detailed procedure with regard to Fund raising compliance once we have finalized the funds need to be raised for our business. Generally Preferential shares are to be issued to investors so that they have a preferential right over the equity shareholders.
A. Investors Documents:
a. Shareholder Agreement & Subscription Agreement:
Shareholder agreement defines an agreement among the shareholders of the company. It regulates management of the corporation such as size and composition of the Board of directors and related procedural matters including frequency of board meetings and quorum & provisions for the resolution of any future disputes between shareholders.
Subscription agreement provides the details of the purchase price for the security. It also includes the representation & warranties that each party will make to each other as part of the agreement.
b. Term Sheet:
Term sheet is a document that outlines the terms by which an investor will make a financial investment in your company. Term sheets tend to consist of following sections:
- Valuation of the company
- Amount of the Investment
- Investor’s profile
- Type of Security to be issued
- Decision making powers of the Board
- Exit Strategy as well as rights at the time of redemption or liquidation.
c. Capitalization Table:
B. ROC Compliance:
a. Conduct a meeting of Board for making a proposal for fund raising activity.
b. An Extra ordinary general meeting need to be called for approving preferential allotment of shares by passing special resolution.
c. After receiving of funds, Company has to allot shares to investors within a period of sixty days of receiving funds through private placement procedure. The Return of Allotment contains a list of all shareholders, with their full names, addresses, percentage of shareholding allotted and other such relevant information. This steps also requires for issuance of shares certificates as well.
C. RBI Compliance:
a. In case of Domestic Investment: As per guidelines issued by RBI, these RBI compliance are not applicable when there is domestic investment involved.
b. In case of Foreign Investment: Some documents need to be submitted to RBi, while raising funds from Foreign Investors.
1. Advance Reporting Form: This form is to be filed within 30 days of receiving funds. This contains information relating to funds as KYC of Investors.
2. FC-GPR Form: This form needs to be filed within 30 days from the date of issue of shares. In this form some Certification regarding procedure compliance need to be certified from CAs/CSs.
(Article is compiled by CA Harshil Goyal who is Founder of Especia Consulting Private Limited and can be reached at hgoyal@especia.co.in)
