A signed term sheet is a milestone, not a deal. It is usually non-binding on price, and the actual money moves only after the definitive documents are signed, a checklist of conditions is cleared, and shares are formally allotted. This lesson walks you through the closing sequence a first-time Indian founder will run between "we have a term sheet" and "the funds have hit our current account," so nothing catches you by surprise.
The two documents that replace the term sheet
The term sheet is converted into two long-form contracts, usually drafted by the investor's counsel and negotiated by yours.
- Share Subscription Agreement (SSA): the transaction document. It records who is subscribing to which new shares, at what price, the total amount, the conditions to be met before closing, and the representations and warranties you give about the company.
- Shareholders' Agreement (SHA): the governance document. It sets out board composition, investor rights such as reserved matters, information rights, anti-dilution, liquidation preference, tag-along and drag-along, and what happens if a founder leaves. Its commercial terms are then written into your Articles of Association (AoA) so they bind the company itself.
Read the SHA carefully. The SSA governs one transaction, but the SHA governs how you run the company for years.
Conditions precedent
Conditions precedent (CPs) are the boxes both sides must tick before the investor is obliged to wire funds. Typical founder-side CPs include passing the board and shareholder resolutions to issue the shares, amending the AoA to reflect the SHA, obtaining any required consents, completing legal and financial due diligence, and delivering a certified capitalisation table. Closing does not happen until the CPs are satisfied or formally waived, so treat the CP list as your project plan. Missing signatures and un-updated statutory registers are the most common cause of delay.
Closing mechanics under the Companies Act
A seed round into a private company is a private placement under Section 42 of the Companies Act, 2013, and it has a strict rhythm you must respect.
- Pass a special resolution and issue the private placement offer letter (Form PAS-4) to the identified investors; file Form MGT-14 for the resolution within 30 days.
- The investor remits the subscription money to the company's bank account.
- You must allot the shares within 60 days of receiving that money. If you do not, the money must be refunded within 15 days, after which it carries 12 percent annual interest.
- You cannot use the funds until the shares are allotted and the return of allotment is filed.
- File the return of allotment (Form PAS-3) with the Registrar of Companies within 15 days of allotment, and issue share certificates within two months of allotment.
FEMA and Form FC-GPR for foreign investors
If any investor is a person resident outside India, the round is foreign direct investment and triggers reporting under FEMA. The specifics matter, so verify them against your Authorised Dealer (AD) bank:
- When funds arrive from abroad, obtain the Foreign Inward Remittance Certificate (FIRC) and KYC from your AD bank.
- Report the allotment in Form FC-GPR through the RBI FIRMS portal (Single Master Form), within 30 days from the date of allotment. Note that the clock runs from the allotment date, not from when the money was received.
- The form is routed to the RBI through your AD bank, and it requires a valuation certificate confirming the shares were issued at or above fair value, plus a company secretary's certificate.
- Missing the deadline does not void the deal but attracts a Late Submission Fee, calculated as ₹7,500 plus (0.025 percent multiplied by the amount multiplied by the years of delay).
Keep your registered valuation report ready early, because it is a common bottleneck for both PAS-3 and FC-GPR.
The first board meeting
The board meeting that approves the allotment is also the moment your governance changes. In it you typically approve the allotment and issue of shares, adopt the amended Articles, and reconstitute the board by inducting the investor's nominee director if the SHA grants one. From this meeting onward you operate under the reserved matters and information rights you signed. Set up a simple compliance calendar for the PAS-3, MGT-14, share certificate, and FC-GPR deadlines. Closing well means the money is in the bank and every statutory filing is done on time.