Post-Funding Compliance Checklist for Startups in India

Post-Funding Compliance Checklist for Startups in India

by Sanjeev Archak

In our previous blog post, we spoke about the Pre-Funding compliance requirements and due diligence that needs to be adhered to for Startups registered in India. Today we will be discussing the Post-Funding compliance checklist for Startups that includes the guidelines set by the Reserve Bank of India for startups raising funds from investors outside India.

Post-Funding Compliance Checklist for Startups

After completion of the process of issuance of offer letters to the investors and filing a complete record of the Preferential Allotment with the Registrar of Companies (RoC), the next step is to allot the shares to the investors.

Step 1) Allotment of Shares:

After receiving the funds, within a period of 60 days the private limited company needs to allot the necessary securities to the investors. The said allotment needs to be done by passing a resolution in the board meeting. Further, within a period of 30 days, a return of allotment needs to be filed with the Registrar of Companies (RoC) within 30 days of the allotment of securities.

This Return of Allotment will contain a list of the full names of all shareholders along with details of their addresses, the percentage of shareholding allotted and other such relevant data.

Step 2) Issue Share Certificates:

After the process of allotment along with the necessary compliances is fulfilled, the company can at last issue share certificates to their investors which also makes them the ‘shareholders’ of the company.

NOTE: The four steps mentioned in the Pre-Funding Compliance Checklist blog post and the two steps mentioned above are mandatory for private limited companies that are looking to raise money from domestic investors or foreign investors. However, in the case of foreign investors, there is an additional list of compliances that needs to be adhered too as per the guidelines laid down by the Reserve Bank of India (RBI).

Being Compliant with the Reserve Bank of India (For Foreign Investors)

For startups raising funds from investors outside India, there is a two-stage reporting procedure that needs to be complied with.

1st Stage: After receiving the funds from investors

 Within a period of 30 days from the day the company receives the funds from the respective investors, it has to provide the following details to the Reserve Bank of India(RBI) in an Advance Reporting Form:

  1. Name and address of the foreign investors;
  2. Date of receiving funds and the amount equivalent in rupees;
  3. Name and address of the bank/authorized dealer through whom the funds have been received;
  4. Details of the government approval, if any; and
  5. KYC report on the non-resident investor from the overseas bank, remitting the amount of consideration.

Further, within a period of 180 days from the date of receiving the funds, the company needs to adhere to the issuance of shares. Failure to comply with the above step would lead to a violation of the regulations laid down under the Foreign Management Act (FEMA).

2nd Stage: On issuance of shares to investors outside India

Within a period of 30 days from the date of issuance of shares, the company needs to report the details of the issue of shares / convertible debentures in the specified form (FC-GPR) to the Reserve Bank of India along with the following:

A) Compliance Certificate from Company Secretary stating that

  1. the company has complied with the necessary procedures for the issuance of shares, as per the guidelines laid down under the Foreign Direct Investment (FDI) Scheme, and,
  2. that all the requirements and guidelines of the Companies Act have been complied with and the investment is below the ceiling permissible under the Automatic Route of the Reserve Bank of India, and/or in terms of the approval of the government, as the case may be,

B) Valuation Certificate from Chartered Accountant indicating the manner of arriving at the price of the shares issued to the foreign investors.

 

Every corporate entity in India needs to comply with the requirements of the Companies Act and other statutory bodies. Non-compliance will result in levy of penalty, even imprisonment, in certain cases. We hope this Post-Funding  Compliance Checklist for Startups helps in creating awareness with regards to the mandatory compliances and basic requirements that are needed to be fulfilled before and after the process of funding.

Statutory compliance filing can get boring as well as time-consuming. Our experts can guide you through each and every compliance involved for your entity. This ensures that you are kept abreast the requirements from the start. Talk to our experts at IntegraBooks today.

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