What You Need To Know About Pre And Post Funding Compliance

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by Ankpal May 04, 2022

In general, compliance refers to the act of abiding by rules. Compliance in business is how an organization obeys essential laws and regulations. It also refers to how the organization manages its business, staff, and consumers. Organizations are liable for fines and penalties under various rules and regulations. No one can ignore the significance of compliance because of the regular amendment of laws.

Basic Startup Checklist

Early-stage founders often approach investors too early before they are ready for business. Here are the pointers that can help them present a solid pitch to the investors.

  • Introduction Of The Team

Investors want to know more about the workforce behind the scenes who work for the success of the organization. So, a proper introduction of the team holds significance during pitch presentations.

  • What Is The Problem You Are Addressing?

As a company, you must have a detailed description of the problem that you are aiming to address or eliminate in the future. It should also describe the impact of the problem and its effect on the industry, commerce, and society.

  • What Is Your Solution?

Investors must be aware of the innovative solutions used by an organization to solve the problems. Following are some of the solutions that address organizational issues.

  • Marketing Plan

A marketing plan has information on the target audience, the market that the organization is entering into, proposed pricing strategies, and distribution channels.

  • Projected Financials

The financials include the estimates of where an organization aims to be in the coming years. The financial details also outline the proposed plans of the business. These details will include a statement of profit or loss, a balance sheet, and a cash flow statement.

  • Finance Sources

Funding holds utmost significance in helping a startup grow at a steady pace. It includes vital details about the credit structure of the organization and its equity and debts. Most organizations have fund accounting software or government fund accounting software to maintain their finances.

Pre-funding Compliance

  • Compliance With The Registrar of Companies

According to the Company Act 2013 guidelines, a private limited company can issue shares to raise funds by making a preferential allotment of shares. The preferential allotment must include shares issued by a listed or unlisted company.

  • Conducting A Board Meeting

All board members must receive a notice at least seven days before the meeting. Mentioned below are the matters to be discussed in the team meeting.

  • Consideration of the valuation report
  • The decision regarding the list of allottees
  • The decision regarding the offer period
  • Setting up a bank account to receive the money
  • Finalizing the offer letter
  • Schedule and venue of the extraordinary general meeting
  • Conducting Extraordinary General Meeting

The objective of an extraordinary general meeting is to pass a special resolution with a 12 months validity regarding the preferential allotment.

  • Issuance Of Offer Letters

The private placement offer letter or application is sent to the proposed allottees in writing or electronic mode within a month.

Post Funding Compliance

  • Allotment Of Shares

The securities must reach the allottee within sixty days after receiving the funds concerning the allotment of shares. One must file a return of the allotted shares with the Registrar of Companies within thirty days of security allotment.

  • Issuance Of Share Certificates

All allottees must get the share certificates to become the official shareholders of the organization. However, if the funding comes from a foreign investor, an organization needs to observe additional compliance as per the Reserve Bank of India guidelines.

Bottom Line

Pre and post-funding compliance is a significant process for startups in India. In order to successfully raise funds, the most vital factors that one must execute concerning the pre and post-funding compliance process are meetings, registrations, allotment of shares, and issuance of certificates. 

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