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Convertible notes, CCPS and CCDs for startups (Companies Act and FEMA)

  • We help you pick the right instrument for the round: a convertible note to delay valuation, CCPS for a priced round, or CCDs for structured funding.
  • Deadline: Before money is received; Form CN within 30 days of issuing a note to a non-resident; FC-GPR within 30 days of allotment on conversion or issue of CCPS or CCDs to non-residents
  • Done in Structuring note in 3 working days; issue paperwork 7 to 10 working days after documents
  • Prepared by your Savvy, checked by a CA
  1. DPIIT recognition certificate
  2. Is the startup DPIIT-recognised today?
  3. Instrument choice note
  4. Instrument recommendation and term summary
The law and the stepsPay and start · QuotePer issue, plus conversion event, + 18% GST

Answer in brief

We help you pick the right instrument for the round: a convertible note to delay valuation, CCPS for a priced round, or CCDs for structured funding. We check that it will not be treated as a public deposit or as foreign debt, fix the conversion terms and valuation, and file the company and RBI reports on time.

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From the official sources

What the law says, and what trips people up

From the official portal's manuals and FAQs, with the source for each point.

The law

  • Companies (Acceptance of Deposits) Rules 2014, deposit exemption for startup convertible notes

    ₹25 lakh or more received by a startup company from a person in a single tranche by a convertible note, convertible into equity or repayable within 10 years, is not a deposit; the 10-year period replaced 5 years by MCA notification of 7 September 2020Source

  • FEMA (Non-Debt Instruments) Rules 2019, Rule 2 definition of convertible note

    Instrument issued by a DPIIT-recognised startup, money received initially as debt, repayable at the holder's option or convertible into equity within up to 10 years; non-resident may invest ₹25 lakh or more in a single trancheSource

  • FEMA (Non-Debt Instruments) Rules 2019, Rule 21 and instrument rules

    CCPS and CCDs count as foreign equity only if fully and mandatorily convertible; optionally or partly convertible instruments are debt under ECB rules; conversion price or formula fixed upfront and not below fair value at issueSource

  • Companies (Share Capital and Debentures) Rules 2014, Rule 13

    Convertible securities need a special resolution; conversion price fixed upfront on a valuation at offer, or later on a valuation not older than 60 days, set not earlier than 30 days before conversion entitlementSource

  • FEMA reporting: Form CN and FLA

    Startup files Form CN within 30 days of issuing a note to a non-resident; transfers involving residents reported within 30 days; FLA return by 15 July each yearSource

  • Companies (Prospectus and Allotment of Securities) Rules 2014, Rule 14(1) proviso

    Land-border country investors need government approval before the offerSource

  • Income-tax Act 2025, Sec 70 (earlier Sec 47(x))

    Conversion of a convertible instrument into shares is not a transfer, so no capital gains at conversion; interest, if any, is taxable with TDSSource

  • Government fee

    MCA filing fees for MGT-14 and PAS-3 (and SH-7 if authorised capital is raised) under the Companies (Registration Offices and Fees) Rules 2014; amounts not confirmed in this research. No RBI fee for timely Form CN or FC-GPR.

  • Late fee or penalty

    Late Form CN or FC-GPR attracts a Late Submission Fee under FEMA (practitioners cite 0.05% or 0.15% of the amount depending on size, subject to caps); beyond the condonable period, compounding with RBI (https://blog.ipleaders.in/explained-convertible-notes/, https://www.equitylist.co/blog-post/private-placement-of-shares).

On the portal

  1. MCA V3: file MGT-14 for the special resolution (and SH-7 if capital is increased) with DSC
  2. For CCPS or CCDs: issue PAS-4, receive money, allot, file PAS-3 on MCA V3 within 15 days
  3. RBI FIRMS: business user registration, then file Form CN (notes) or FC-GPR (shares, CCPS, CCDs) with FIRC, KYC and valuation certificate through the AD bank
  4. On conversion: board resolution, PAS-3 and FC-GPR for the shares issued

What trips people up

  • Note issued below ₹25 lakh per investor or split across tranches

    Each investor must put ₹25 lakh or more in one tranche; use CCPS for smaller chequesSource

  • Note issued by a startup without DPIIT recognition

    Get recognition first or use CCPSSource

  • Optionally convertible preference shares or debentures issued to a foreign investor

    Make them fully and mandatorily convertible, or follow ECB rulesSource

  • Form CN or FC-GPR filed late

    File within 30 days; late filings attract late submission fee or compoundingSource

  • Several notes stacked without modelling combined dilution

    Model dilution; consider a priced round if note dilution is largeSource

  • Aggressive coupon on CCDs draws scrutiny

    Keep interest modest so the instrument stays equity-like; deduct TDS on interestSource

People ask

Can two investors put ₹12.5 lakh each in one note?

No. The ₹25 lakh minimum is per investor in a single tranche.Source

How long can a note stay unconverted?

Up to 10 years from issue, after which it must convert or be repaid.Source

Do we need a valuation to issue a note?

Not at issue, but FDI rules need a valuation when shares are issued on conversion.Source

Is conversion taxed?

Conversion into shares is not treated as a transfer, so no capital gains at that point.Source

Can NRIs invest in our note?

Yes; NRIs and OCIs can also invest on a non-repatriation basis; check Form CN needs with the AD bank.Source

Does DPIIT recognition matter after the note is issued?

It matters at issue; a validly issued note does not become a deposit later, but convert on schedule.Source

IDFD

How we solve it: 4 steps

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Step 1 of 4 · What we need from you

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  • DPIIT recognition certificate
  • Investor list with amount per investor
  • Investor residency, nationality and KYC
  • Sector of business
  • Draft note, CCPS or CCD terms
  • Valuation report
  • Current AoA and authorised capital
  • Bank remittance proof (FIRC) for foreign moneyOptional

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+ 18% GST

Per issue, plus conversion event. Delivered in Structuring note in 3 working days; issue paperwork 7 to 10 working days after documents. Due: Before money is received; Form CN within 30 days of issuing a note to a non-resident; FC-GPR within 30 days of allotment on conversion or issue of CCPS or CCDs to non-residents

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