Pay Penalty if you Raise Funds

The Government has announced several amendments with respect to Private Placement rules and norms and this will certainly affect funding plans for your startup. The general procedure being followed by startups is receiving the funds from investors and then starting the compliance. Henceforth, this process might land you and your startup in trouble. Yes, you will have to pay penalty if you raise funds and do not follow the right process and comply with the applicable laws. image-300x300The changes that have been made are applicable when the funds are raised through the Private Placement procedure as per the Companies Act 2013. 

Things to Note

a) The details of Offer Letter shall form part of the Explanatory Statement to be sent along with the Notice sent for the meeting of Shareholders. 

b) The Offer Letter shall include various additional information which was not required earlier. 

c) Filing of Form GNL-2 is not required anymore. 

d) Offer Letter shall not be issued unless Form MGT-14 is filed with the Ministry of Corporate Affairs. 

e) Form MGT-14 to be filed should also attach the copy of the resolution passed in the Board Meeting in addition to the Shareholders’ Resolution passed in the general meeting. 

f) Valuation should be done at least 30 days prior to the date of the general meeting. This shall be referred to as the ‘Relevant Date’ and the Offer Letter should mention the Relevant Date. 

g) The minimum investment size of INR 20000 in face value of securities have been withdrawn which was required earlier. 

h) In case of allotment of securities for consideration other than cash, this shall have to be justified with a valuation report and shall be stated in the Offer Letter. 

i) The mode of payment for the subscription of securities by the Applicant / Investor should be specifically stated in the Offer Letter. 

j) The return of allotment in Form PAS-3 should be filed within 15 days from the date of allotment. The time-limit has been brought down from 30 days to 15 days making the process stricter.

Considering the stringent compliance process it has become very important to do the right things while raising funds from investors. And to ensure the right compliance structure and to avoid the penalty which may extend up to lakhs and crores of rupees, you should pay special attention to documentation and timely compliance and always consult an expert before raising funds. 


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