Before accepting any funding; every startup in India needs to be complied as per ROC norms. There are different stages of startup funding. Please find four steps of pre-funding compliance.

As per guidelines mentioned in the Companies Act, 2013 a private limited company can raise funds by issuing shares within and outside India, by making preferential allotment of shares to angel investors, seed investors, and venture capitalists.

Preferential Allotment of Shares is governed under the provisions of Section 62(1)(c) of Companies Act, 2013 and Associated Rule 13 of Companies (Issue of Share Capital and Debentures) Rules, 2014.

Article of Association (AOA) need to be updated with necessary provisions like

• The issuance of shares under this method should be authorized by the AOA of the company.

• A special resolution needs to be made for authorization of allotment of such shares.

• The share price needs to determine by the company valuation report of a registered valuer.

2) Conducting a board meeting:

A board meeting of all directors needs to be conducted for the authorization of the preferential shares’ allocation.

3) Conducting an Extra-Ordinary General Meeting:

For the approval of allotment of preferential shares, An Extra-Ordinary General Meeting needs to be conducted by passing a Special Resolution.

• There should be 75% of the votes in favor of the resolution.

• The Special Resolution is valid for a period of 12 months and within this period the Preferential Allotment can take place at any time.

4) Issuance of Offer Letters:

The offer letter will be approved in a specified format after the approval of a majority of board members.

A complete record of the Preferential Allotment needs to be filed with the Registrar of Companies (ROC) within a period of 30 days of issuing the offer letters.

Now the company is eligible for receiving money from investors. After this stage startup can accept funds from investors. This is not the end as startups also need to comply with post-funding compliance and RBI reporting in case of foreign investors.