Reference to annual filing of forms with Registrar of Companies (“ROC”) for the Financial Year 2017-18

This is with reference to annual filing of forms with Registrar of Companies (“ROC”) for the Financial Year 2017-18.

Every company registered under the Companies Act has to meet the below timelines:

Delayed filings will result in penalty of
₹ 100 /day

Ensure your portfolio companies complete their filings on time!

Special offer for you from LexStart

Prepare & File Annual Returns + All AGM Documentation*
₹ 8,000 /-
ONWARDS

*Includes assistance with drafting & filing of

  • Notice of board and sharehonders’ meeting
  • Directors’ Report
  • Extract of Annual Return
  • Form AOC-4 – Balance Sheet
  • Form MGT-7 – Annual Return

If you need any information or clarification, please do not hesitate to contact us. You can reach out to [email protected] with any specific queries that you may have.

Startup India Series: Raising money from Angel Investors: How to take money from friends and family ? (Part 3) (Raising money by issuance of convertible instruments)

Euro exchange rate. Neon style illustration. Convert, income, transfer. Currency banner. For finance, banking, business concept

In the previous parts of this series, we gave you pointers on raising funds by way of debt and by issuance of shares. In this part we see the route startups can take in case they want to draw investors with promises of an assured annualised return while also giving them the upside of the appreciation of the share price of the startup. Convertible instruments provide both these comforts.

Convertible instruments include compulsorily convertible debentures (“CCD’s”) and convertible notes (Click here for our detailed post on convertible notes) and are a bit more sophisticated than regular debt and equity. The money raised through both these instruments will be treated as debt on the books of the company and within a certain period these instruments will convert into shares of the company. These instruments can also be interest bearing, in which case the company will also end up making a certain interest payment on the dent every year, while at the end of the tenure of the instrument the principal will convert into shares of the company.

These instruments are an extremely lucrative investment for investors. Consider this: The instrument convert within a 5 year period, which is a long duration in the life of a startup and during which time the valuation may have skyrocketed. In case you had agreed to a 1:1 conversion ratio 5 years back on an INR 1000/- loan, when the value of a share of the company was INR 10/- and after 5 years the price of the shares has skyrocketed to INR 100/-, the investor makes a 10x return on his investment.

With a convertible instruments there come in concepts like “discount at the time of conversion” i.e. when the conversion happens at a discount to the future valuation of the company e.g. My convertible note will convert 5 years later. I have invested INR 1000 /- today and I will be getting shares worth the same amount. However, considering that I am taking a risk, I will get a 30% (Thirty percent) discount on whatever the valuation of the company may be after 5 years. Therefore after 5 years if the price of the shares of the company is INR 100/-, my conversion will be made considering assuming the price of the shares to be INR 70/-. These concepts are fairly complicated, can have tax implications and it is always recommended, that you seek professional advice before issuing these instruments.

While CCDs have existed for some time, convertible notes are a fairly new phenomenon which we have adopted from the western market. Convertible notes in India come with some simple principles of issuance:

  1. They can be issued only by Startups recognized by DIPP;
  2. The amount of investment will have to be atleast INR 25 lakhs in a single tranche;
  3. The amount will have to be converted within 5 years; and
  4. The terms of conversion will have to be determined upfront.

Things to look out for: Terms of conversion: Considering that these instruments convert at a later date and the terms of conversion have to be fixed upfront, it is key to ensure that you do not give away a large chunk of equity as a result of conversion. Conversion is determined by a formula (which factors in revenue, profits etc.) or on the basis of a ratio e.g. 1:1; where each CCD converts into an equity share of the company. Also, institutional or professional investors are wary of any existing instruments in the Company which will convert at a later date and can possibly dilute them.

With the Startup India series we plan to answer the ten most commonly asked common legal questions which we get asked.

At LexStart we advise startups at various stages of growth on disclosure related compliances and non-disclosure arrangements. You can reach out to [email protected] with any specific queries that you may have.


Disclaimer: Please note that the article above is for information purposes only and represents the views of the author and should not be construed as legal advice.

Startup India Series: Raising money from Angel Investors: How to take money from friends and family ? (Part 2) (Raising money by issuance of equity shares)

Fundraising 2 (1)

In Part 1 of this series we looked at debt as a means of raising money for a startup.

In Part 2 we look at raising money through issuance of equity shares.

A company can raise money by issuing shares to existing shareholders or new investors, and this process is fairly simple as long as all investors are Indian residents.

Pros: Since the investment is being made in the shares of your company and is not being provided as a personal debt to you or as a loan to your company, there is no question of returning the investment at a later date and in most cases there is no requirement to provide dividends.

Cons: With third party capital you are bound to give up certain amount of control (Term Sheet), and always remember that the third party investor is looking for an exit, whether it is short term or long term. You should be very careful while negotiating exit clauses and try to avoid any form of excruciating promoter buybacks, where the promoter will end up having to buy back the shares of the investors mandatorily after a certain time period (and usually at a certain profit margin) in case they fail to provide an exit.

The biggest challenge when raising equity capital in the early stage is valuation. How do you agree how much dilution is ok? Wondering what we are talking about? Read our blog on the Valuation Game and how it affects your shareholding as a promoter in your startup.

Compliance check: While issuing shares always ensure that you obtain a valuation report for the shares from a merchant banker and do not undervalue them during issuance, since there can be severe tax implications in case you decide to issue shares at a price lower or higher (in case of angel investors) than the fair value.

Things to look out for: Do think about the dilution that the founding team will be facing. Considering that at an early stage the valuation of the company will be quite low, you may end up becoming a minority shareholder in your own company in case you raise too much money through the equity route at early stages. Also have a shareholders agreement in place which clearly identifies the rights of each party and ensures that there is no room for confusion at a later date. Equity investment in a private company can be uncharted territory for friends and family and make sure that you educate them on the risks involved prior to the investment.

With the Startup India series we plan to answer the ten most commonly asked common legal questions which we get asked. In the next part we answer “Raising money by issuing convertible instruments”

At LexStart we advise startups at various stages of growth on disclosure related compliances and non-disclosure arrangements. You can reach out to [email protected] with any specific queries that you may have.


Disclaimer: Please note that the article above is for information purposes only and represents the views of the author and should not be construed as legal advice.

Startup India Series: Raising money from Angel Investors: How to take money from friends and family?(Part 1)

With the Startup India series, we plan to answer the ten most common legal questions which we get asked. This week we answer your queries on raising funds from angel investors.

Once you have got that killer idea, found the team, worked out your business plan (and planned on how you will spend the billions that you make from the business !), one consideration hits you in the face: Money or rather the lack of it ?

Although terms like “lean” and “bootstrapped” are now in vogue, every startup will have a certain burn rate in its initial years and unless you plan to fund yourself, it may be a good idea to get incorporated and start looking to raise money.

The first round of investments that a startup raises is generally from friends and family and under Indian laws, a startup can look forward to raising money by means of a loan or by issuing shares.

While issuing shares is a fairly simple process (as long as issuances are being made to Indian residents), taking loans by a startup maybe a bit more complicated, considering that a company incorporated in India, can accept loans from only certain people. There is a third option of issuing a convertible instrument, where the money received will be treated as a loan on the books of the company, till the loan converts into shares of the company.

In this 3 series article, we take a detailed look at all the possible options, i.e.:

(i) Debt

(ii) Equity

(iii) Convertible Debt

(i) Debt: Debt can be raised in form of a simple loan or a secured loan (where the property of the founders or the company acts as security for the loan). The catch is that under Indian laws companies can accept loans only from certain specified persons. Therefore before your company accepts a loan from friends or family make sure to check that you are allowed to do so under the Companies Act and the Deposit Rules.

As per Indian law, loans can be taken by a company from persons who were at the time of giving such loan, a director or a relative a director the company, provided the lender in this case gives a declaration that the loan being given is not out of borrowed funds. “Relatives” under Indian company law include Father (including step-father),  Mother (including step-mother), Son (including step-son), Son’s wife, Daughter, Daughter’s husband, Brother, (including the step-brother), and Sister.

In case your company is planning to accept any loans from any other relatives (Uncles and Aunties!), and they are not directors in your company, such loan will be treated as a deposit and will require complex compliance.

Things to look out for: Typically loan agreements with institutional lenders (e.g. Banks, NBFC’s) give the lender the option to convert their debt into equity in case there is a default on the part of the startup. Also a lender typically has the option to recall the loan immediately incase there is an “event of default” i.e. any event which makes the lender feel that there might be a risk of non-payment by the startup. Also, in case you as a founder give a personal guarantee, please understand that you will end up repaying the loan from your pocket in case there is a default on the part of the company.

With the Start-up India series we plan to answer the ten most commonly asked common legal questions which we get asked. Next week we answer “[-]”

At LexStart we advise start-ups at various stages of growth on disclosure related compliances and non-disclosure arrangements. You can reach out to [email protected] with any specific queries that you may have.



Disclaimer: Please note that the article above is for information purposes only and represents the views of the author and should not be construed as legal advice.

Urgent reminder for filing of Form DIR 3 – KYC | Mandatory filing for all directors including foreign directors | 2 specific points that foreign directors should remember

This is the first time this KYC check is being done and all directors of all companies in India (including disqualified directors) will be required to file the Form DIR 3 – KYC with the Ministry of Corporate Affairs through the MCA 21 portal.

Key points to remember for any person who is a director of an Indian Company are:

(i) This KYC is mandatory for all directors, including disqualified directors. However directors holding DINs which have been ‘deactivated’ prior to September 15, 2018 do not need to make this filing. Foreign directors also need to make the filing.

(ii) This KYC is independent of any other filings that you may have made, and has to be made irrespective of whether you have submitted KYC related details to the Ministry of Corporate Affairs previously. “KYC is independent of any other filings made in the past”

Foreign Directors need to keep in mind the following points before filing the form:

(i) A foreign residential proof is allowed for foreign citizens who are directors in Indian companies. Bank statement, electricity bill, telephone / mobile bill which specifies the address of the director may be attached as address proof, provided that bank statement, electricity bill, telephone or mobile bill shall not be more than 2 months old.

(ii) Aadhar number is not required for filings being made by foreign citizens.

(iii) A foreign mobile number may be used by foreign residents for verification purposes.

For further details you can also refer to the FAQs on the Form DIR 3 – KYC issued by the Ministry of Corporate Affairs and the FAQs by LexStart.

Click here to download the Form DIR 3 – KYC

Click here to download the Instruction Kit for Form DIR 3 – KYC

At LexStart we advise start-ups at various stages of growth on disclosure related compliances and non-disclosure arrangements. You can reach out to [email protected] with any specific queries that you may have.


Disclaimer: Please note that the article above is for information purposes only and represents the views of the author and should not be construed as legal advice.

Urgent reminder for filing of Form DIR 3 – KYC | 5 things you need to file the Form DIR 3 – KYC

As pointed out in our previous article (Directorship – Comply with MCA, KYC Guidelines), the Ministry of Corporate Affairs of the Government of India has decided to conduct a KYC check of all directors of all companies registered in India on an annual basis. As per the Ministry of Corporate Affairs, any person who has been allotted Director Identification Number (“DIN/DPIN”) on or before March 31, 2018 and the status of such DIN is ‘Approved’, needs to file form DIR 3 – KYC to update KYC details in the system of the Ministry of Corporate Affairs.

The KYC has to be filed on or before September 15, 2018.

You will require these 5 things to make this filing:

(i) A unique personal mobile number and a personal email id;

(ii) PAN number and Aadhar number;

(iii) Class 2 Digital Signature Certificate.

(iv) Form DIR 3 – KYC which has been filled in by you and certified by a practicing Chartered Account / Company Secretary or a Certified Management Accountant (Certified by the Institute of Cost Accountants of India); and

(v) A proof of permanent address which needs to be attached to the form. Bank statement, electricity bill, telephone / mobile bill which specifies the address of the director may be attached as address proof, provided that bank statement, electricity bill, telephone or mobile bill shall not be more than 2 months old.

Please remember that if you fail to file the Form DIR 3 – KYC by September 15, 2018, then the Ministry of Corporate Affairs shall mark your DIN as deactivated, and you will have to pay a fee of INR 5000 /- to file the form and reactivate your DIN.

For further details you can also refer to the FAQs on the Form DIR 3 – KYC issued by the Ministry of Corporate Affairs and the FAQs.

Click here to download the Form DIR 3 – KYC

Click here to download the Instruction Kit for Form DIR 3 – KYC

At LexStart we advise start-ups at various stages of growth on disclosure related compliances and non-disclosure arrangements. You can reach out to support@lexstart.in with any specific queries that you may have.


Disclaimer: Please note that the article above is for information purposes only and represents the views of the author and should not be construed as legal advice.