A signed term sheet is a promise, not a payment. Between the investor saying yes and the money clearing your account sits the most administrative phase of a raise: definitive documents, a checklist of conditions, share allotment, and regulatory filings. This is where clean execution protects the goodwill you just earned. Miss a step here and you can delay your close by weeks or, worse, sit on foreign money you are not yet allowed to spend. Here is how to run it.
The two documents that replace the term sheet
Your term sheet converts into two binding agreements. The Share Subscription Agreement (SSA) is between your company and the investor. It sets the price, the number of shares, the closing mechanics, and the representations and warranties you give about the business. In plain terms, the SSA gets the money in.
The Shareholders Agreement (SHA) governs life after the money lands: board composition, reserved matters that need investor consent, information rights, transfer restrictions, anti-dilution, and exit provisions like drag-along and tag-along. The SHA sets the rules for everything that happens next, so read it as carefully as the cheque size. Your Articles of Association will usually need to be amended to reflect these rights, because in India the Articles, not the SHA, bind third parties and the company.
Conditions precedent: the to-do list before money moves
Conditions precedent (CPs) are the tasks that must be completed before the investor is obliged to pay. Typical CPs include completion of due diligence, passing a board resolution and a shareholders special resolution to issue shares, amending the Articles, obtaining a valuation report from a registered valuer, and delivering signed employment or founder lock-in agreements. Some items are conditions subsequent, meaning you commit to finish them shortly after closing.
Treat the CP list as a live tracker with an owner and a date against each line. The round closes only when every CP is satisfied or formally waived in writing by the investor.
Foreign money: FEMA and the FC-GPR filing
If your investor is resident outside India, the Foreign Exchange Management Act (FEMA) rules apply on top of the Companies Act. Two points matter most. First, the issue price cannot be lower than the fair value certified under an internationally accepted pricing methodology. Second, you must report the investment.
After the non-resident remits the money and you allot shares, you file Form FC-GPR within 30 days of allotment on the RBI's FIRMS portal using the Single Master Form, routed through your Authorised Dealer (AD) bank. Register your company on FIRMS early, because approval takes time. Missing the 30-day window is not fatal but it is costly: RBI charges a Late Submission Fee under circular RBI/2022-23/122, calculated as Rs 7,500 plus 0.025 percent of the amount involved per year of delay.
The closing timeline, step by step
- Sign the SSA and SHA once all CPs are met or waived.
- Receive the subscription money into a separate scheduled-bank account. Under Section 42, this money cannot be used for anything until shares are allotted.
- Allot the shares by board resolution within 60 days of receiving the money. If you cannot allot in time, you must refund within 15 days or pay 12 percent interest.
- File PAS-3, the return of allotment, with the Registrar of Companies within 15 days of allotment.
- File FC-GPR within 30 days of allotment if any investor is a non-resident.
- Issue share certificates within 2 months of allotment and update your register of members.
The money is legally, cleanly yours only after allotment and filing are done. Build a simple closing checklist with dates, hand a copy to your company secretary, and do not spend foreign capital until FC-GPR is submitted. Disciplined closing is quiet, but it is the founder posture that makes the next investor trust you.