Funding & Investment Advisory in India

Legal Structuring, Compliance, and Strategic Guidance

Securing investment is a critical milestone for any growing business, whether a startup, SME, or established company expanding operations. At the same time, investors—ranging from angel investors and venture capital (VC) firms to private equity (PE) funds and strategic acquirers—seek robust legal safeguards and compliance before deploying capital.

Funding and Investment Advisory involves legal and strategic support in structuring investments, conducting due diligence, drafting transaction documents, and ensuring regulatory compliance. For both investors and investee companies, legal advisory plays a key role in balancing risk, governance, and growth.

Types of Investment and Funding Structures

Equity Investments: Seed to growth-stage, includes investor rights like anti-dilution and board seats.
Convertible Instruments: CCPS, CCDs—convertible at events/valuations; common in early-stage deals.
Debt Funding: Term loans, NCDs, ECBs, structured PE deals.
Hybrid Instruments: Mezzanine and venture debt—combine equity upside with repayment structure.

Legal and Regulatory Framework

Companies Act, 2013: Private placements, board/shareholder approvals, disclosures (Sections 42, 62).
FEMA: FDI laws, sector caps, pricing norms, RBI filings.
SEBI Regulations: Applies to listed companies and registered funds (AIFs, IPOs, Takeovers).
Income Tax Act, 1961: Capital gains, angel tax, ESOP taxation, transfer pricing.
Startup India & DPIIT: Angel tax exemption for recognized startups.

Key Steps in a Funding Transaction

Initial Planning: Choose suitable instrument aligned with investor and capital goals.
Due Diligence: Legal, financial, tax, and operational reviews.
Term Sheet: Non-binding document with valuation, rights, exits, preferences.
Definitive Agreements: SSA, SHA, Debenture Agreements including warranties and covenants.
Regulatory Filings: FCGPR, PAS-3, board/shareholder resolutions, RBI/ROC/SEBI compliance.
Post-Investment Governance: Investor rights, compliance, ESOP implementation, audits.

Common Legal Issues in Funding Transactions

Non-compliance with FEMA pricing rules
Poorly defined shareholder rights or exit terms
Unclear IP ownership or due diligence gaps
Missed RBI/MCA reporting deadlines
Disputes over liquidation preferences and exits

Frequently Asked Questions (FAQs)

1. What is the difference between CCPS and equity shares?: CCPS are convertible shares offering liquidation preference, ideal for early-stage investors.
2. Can foreign investors invest in Indian startups?: Yes, under FDI guidelines (automatic or approval route), subject to FEMA rules.
3. What rights do investors typically seek?: Board seats, anti-dilution, veto powers, drag-along/tag-along, information rights.
4. Is it mandatory to register a Shareholders’ Agreement?: No, but it’s essential for governance and exit clarity.
5. What is angel tax and how is it avoided?: Tax on excess premium under Section 56(2)(viib); DPIIT-recognized startups are exempt.
6. What is an exit clause?: Defines how and when investors can exit: IPO, buyback, secondary sale, etc.
7. Are ESOPs important in fundraising?: Yes, used to attract talent; must comply with Companies Act and tax rules.
8. Can funding deals be completed fully online?: Yes, with digital signatures, ROC e-filings, and electronic share certificates.

Conclusion

Legal guidance in funding and investment ensures structured deals, risk mitigation, and compliance with Indian law. From valuation to exit planning, the right advisory helps businesses and investors align on strategy, governance, and growth outcomes.