Pre and Post Funding compliance for Startups 2021

If you are an early age StartUp and planning to raise/raising funds through angel Investors or Venture capitalists. There are going to be some compliances related to funding. which every StartUp raising funds must follow. In this post we will discuss regarding the Pre and Post Funding compliances checklist that every StartUp needs to follow at the time of raising funds in 2021.

There are Top 4 sources of funding for a startups

  • Seed Capital and Early-Stage Funding
  • Equity Funding
  • Debt Funding
  • Mezzanine Financing

To know more in details, click here. We at Wazzeer have helped score of companies providing end to end support for funding compliances.

As you know receiving equity funds requires an exchange of shares in return, now the process of Issue of shares can be done in two ways Rights Issue, and Private Placement.

Rights Issue comes into picture If the Shares are to be issued to existing shareholders. Basically, the right to invest further in the company according to their existing shareholding has been incremented.

Private Placement comes into picture when the shares are to be issued to an investor who does not hold any shares in the company.

Compliance Involved in Processing Equity Funding:

List of Pre-Funding Compliances for StartUp:

  1. Change of authorized capital (if required):
  2. if the Authorized share capital of the company is not sufficiently high. It is required to be increased first before doing any other compliance to issue fresh shares.

  3. Prepare Draft of Offer Letter:
  4. Draft of the offer letter of issue of shares needs to be prepared. In this draft all the information related to company valuation, shares allocation, face value of the shares, etc. needs to be finalized.

  5. Conducting a board meeting:
  6. A Board meeting needs to be conducted for approving the following points. A notice needs to be sent to all the board member before 7 days of the meeting.

    • Considering the Valuation report: A valuation report needs to ne prepared by a CA/Registrar valuer. And same needs to be approved in the board meeting.
    • List of Allottees: The list of all the new shareholders needs to be finalized.
    • Offer Period: The decision regarding the offer period of needs to be finalized.
    • Opening a bank account: A fresh bank account in a Scheduled bank needs to be opened for the purpose of receiving the investment only.
    • Finalizing the draft offer letter: The draft offer letter that which will be issued to the shareholder needs to be finalized.
    • EGM Finalization: The date, day, venue and time for Extraordinary general meeting (EGM) needs be finalized and notice for EGM and the Explanatory Statement to be attached.
  7. Conducting of EGM:
  8. An Extraordinary general meeting needs to be conducted with an objective of passing the special resolution for allotment of shares. This special resolution will have validity of 12 months. A complete record for private placement must be prepared in form PAS-5.

  9. Issuance of offer letter:
  10. Once the approval of issue of shares is obtained, the private placement offer letter draft needs to be shared with the allotees within 30 days, through physical or electronic mail. A complete record of the allotment needs to be filed with the Registrar of Companies (ROC). Once this is done the company can receive funds from the investors.

List of Post Funding Compliance for a StartUp:

  1. Allotment of shares:
  2. In case of rights issue, the application money can be paid in the form of cash also. In case of a Private placement, the share application money should come the Investment account of the company through banking channels only.

    After receiving application money, the second board meeting is held for approving allotment and issue of shares. Within 60 days of receiving the funds, the shares need to be allotted to the allotee and after allotment within 30 days a return of allotment needs to be filed with the registrar of companies.

  3. Issue of share certificate:
  4. The company must issue share certificate to the investor within 60 days of allotment of shares. It cannot use the money until the certificate is issued. If the company doesn’t issue share certificate within the specified time, it will have to return the money to investors.

  5. Following additional compliances will be applicable in case of Foreign/NRI Investors:
    • Advance Reporting Form: This form is to be filed with Reserve Bank of India within 30 days of receiving funds. This contains information relating to funds as KYC of Investors
    • FC-GPR Form: This form is required to be filed within 30 days from the date of issue of shares. In this form Certifications regarding the procedure, compliance needs to be certified from a Company Secretory. Along with this, valuation certificate certified by a CA must be submitted. Two documents are required to file this form-FIRC issued by the company’s bank and KYC issued by investor’s bank.

If you need any help with the with the above feel free to reach out to us at Wazzeer or write to us at