Planning to Raise a Funding Round? Complete Documentation Trail

While the entire idea of fundraising looks daunting and often takes months before the money reaches the bank account, it is an inevitable process that companies must go through to procure capital. Therefore, to avoid having to go back time and again to the investors, companies have to ensure that the funds raised meet all capital needs for a given period of time.

Every funding round goes through a standard set of procedures that mostly starts with the founders pitching the idea, negotiating the terms of the investment deal, documentation, due diligence, statutory filings and so on. Being prepared with all these necessary documents will accelerate the entire process and make it relatively easy for both the company and the investors.

Here are the most common sets of documents involved in raising a funding round.

1. Incorporation documents (pre and post incorporation)

The company has to be a registered entity under law. This is because no professional investor will come on board unless the company is an incorporated entity and is in compliance with all mandatory statutory laws. This includes having the charter documents of the company in place -memorandum of association, articles of association; holding a valid certificate of incorporation; obtaining the applicable statutory registrations/permits- GST, labour laws, environmental laws etc.

2. Term Sheet

This is the first of the many agreements that goes into an investment deal. Investors and the company lay out the terms that govern their actions in the entire course of being mutually engaged. Pay special attention to the terms that you wish to capture in the term sheet because it sets the framework on which future documentation is prepared. This mainly includes clauses relating to:
  1. The value of the company;
  2. Class of security being issued in the round;
  3. Shareholding pattern of the investors;
  4. Investors and founders rights;
  5. Anti-dilution protection provisions;
  6. Liquidation preference rights;
  7. Percentage of stock reserved in the stock option pool;
  8. Exit rights and, others.
The term sheet must be executed and signed by the founders, existing investors and the new investors of the company. Once the term sheet is signed, the company and founders have to agree not to approach any other investor, engage in discussions or enter into any agreement with respect to fund-raising or sale for an agreed duration of time. This could be 60 to 120 days.

3. Transaction Documents

Transaction Documents” are an extension to the term sheet and contain the binding terms of the investment contract. They are mostly ‘Share Subscription Agreement’, ‘Shareholders Agreement’, ‘Non-disclosure agreement’.
  1. Investment Agreements/ Subscription Agreement: This agreement is an understanding between the company and the investor whereby the investor agrees to invest into the company by subscribing to the company’s shares and the company agrees to allot the subscribed class of shares to the investor.
  2. Shareholders Agreements: The shareholders agreement captures the final terms of the investment deal. It governs the shares held by each of the shareholders vis-à-vis the management of the company. It is a must that all terms in the shareholders agreement be within the purview of the articles of the company. If not, the articles must be amended to give effect to such terms.
  3. Non-disclosure agreement: The business idea of the company, its financials, business operations, contents of the investment deal etc., have to be protected at all times. The main purpose of the NDA is to do just that. It provides a legal protection to the company from its information being leaked to any third party. Alongside, it also indemnifies the company in case of any violation. The NDA can be with contractors, employees and other associates.
Many times, founders insist that investors sign an NDA at the time of entering into the investment deal to protect company sensitive information. However, this could prove problematic as many investors may reconsider the investment proposal when asked to sign one. This is because the investment options available to the investors may create conflicting interests and limit their options if they agree to sign the NDA especially if these options are available in the same industry. If need be, the company’s sensitive information may be disclosed to investment bankers, accountants, legal counsel and other such consultants provided they sign the non-disclosure agreement.

4. Intellectual property assignment/registrations

In the best interest of the company, the business idea/product/service must be registered in the company’s name under the Intellectual Property Act. This could include any trade secret, business, product names, logos, processes, designs, concepts, discoveries, inventions, technology, original works of authorship, know-how, databases, methodologies, software, computer programs, technical information, engineering and technical drawings, and other such knowledge or information developed. Since the company hires/deals with a number of individuals on a daily basis, it is best to have them sign a contract whereby they agree to grant ownership rights to the company of any developments made in the course of providing services to the company. Some investors insist on looking at these documents at the time of due diligence to ensure that there will not be any misuse of the company information and that the company owns all of its intellectual property.

5. Valuation report/certificate

A funding round may be priced or non-priced. Meaning, a priced round is when the company is valued at the time of investment, a non-priced round skips the need to value the company. Based on the type of round, many terms of the investment deal are set. This could be-the price of shares, number of equity shares to be issued in the round, conversion ratio of one convertible security to equity etc.

To do this, most often, companies hire a registered valuer with the consent of the investors who will set the value. The company’s stage of growth determines the factors considered to establish this value. The registered valuer has to disclose all key findings and information used to assess and arrive at the number in the valuation report or certificate.

6. KYC

The company must have a designated bank account that can be used exclusively to receive the share subscription money. For this purpose, all the documents needed for KYC purposes to open a bank account must be submitted. This includes PAN, memorandum of association, articles of association, certificate of incorporation, address proof of the company etc.

7. Conditions precedent compliance certificate

The investment deal will be closed only once all the conditions specified in the transaction agreements mentioned above are satisfied. Typical conditions include- (i) completion of financial and legal due diligence by the investors; (ii) obtaining all internal, shareholder and regulatory approvals for the purpose of raising funds etc. Upon completion of all these conditions, the director must sign a condition precedent compliance certificate as evidence that all compliances have been met.


If there are any funds received from abroad, the company has to issue a Foreign Inward Remittance Certificate to the foreign investor. An FIRC is documentary proof for having received foreign funds. It is issued through the authorized dealer bank facilitating the transactions to the investor. An FIRC ensures that the amount received is for legal purposes, safeguarding the interests of the investors.

9. Closing forms

The process of fundraising does not end with the company receiving the investment amount. The company has to fulfil certain other conditions subsequent to this to close the investment transaction. This mainly includes filing statutory forms that include:
  1. DIR-12: Investors have the right to appoint directors to the Board. If a new director joins the Board, such information has to be intimated to the ROC in form DIR-12 along with a declaration from the director providing consent to such appointment.
  2. FC-GPR: Shares issued to a foreign investor have to be reported to the RBI within a period of 30 days from the date of issuance. For this, the company has to register itself as a business user on RBIs FIRMS portal to complete the filing. 
  3. Form MGT 14: Issue and allotment of shares require the approval of the existing shareholders of the company. All special resolutions passed in this regard in the extraordinary general meeting of the shareholders have to be submitted in form MGT-14 with the Registrar.
  4. Form PAS-3: Once the shares have been allotted to the respective investors, the company has to file Form PAS-3 with the Registrar within 15 days from the date of the board resolution passed approving such allotment. The form has to be filed along with the following annexures- (i) list of all allottees- their names, address etc.; (ii) the duly stamped agreement pursuant to which the shares have been issued; (iii) valuation report.
  5. Form PAS-4: If securities have been allotted under a private issue of shares, the company has to file the private placement offer letter in Form PAS-4 with the Registrar along with the copy of the board resolution and special resolution passed in this regard.
  6. Share certificate: Share certificates in physical or demat form have to be issued to the investors as proof of funds received. This is 2 months from the date of allotment of shares.
  7. Form SH-7: If there is any alteration in the authorized share capital of the company, the notice of such alteration has to be filed with the Registrar in Form SH-7. The form shall be accompanied with copies of the resolution passed approving such alteration; altered memorandum and articles; and other annexures necessary to intimate the Registrar regarding the same.

The entire investment process involves various legal compliances that need to be understood and fulfilled at the very beginning for the investment deal to be valid. It is best that all the basic company documents signed by the concerned authorized signatory are organized and recorded at the registered office of the company to avoid any delays in the course of the investment deal. 

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