Receiving money does not itself create valid shares. The route, offer, allotment and records must comply with company, tax and FEMA requirements.
Quick View
Company secretary, CFO and legal counsel
Per capital event
Select the issue route with counsel.
Board and shareholder approvals.
Why It Matters
The issue route should be selected before soliciting funds. Rights issues and private placements have different eligible persons, documentation, approvals, offer mechanics and filing requirements.
Authorised capital, articles, investor rights, valuation, pricing and securities terms must be checked together. Foreign subscribers add FEMA entry route, sectoral, pricing and reporting analysis.
Subscription money needs a traceable banking trail and should be handled in the manner required for the selected route. Allotment, certificates, register updates and return filing complete the legal process.
Control Framework
| Control | What it covers | Operating rule |
|---|---|---|
| Pre-issue | Authority, capital, route and valuation are checked. | Do not collect money early. |
| Offer | Eligible investors and offer documents are controlled. | Use the exact approved terms. |
| Allotment | Board acts within the lawful process. | Reconcile money and applicants. |
| Post-allotment | Returns, certificates and registers are completed. | Update cap table only after legal issue. |
Action Checklist
- Select the issue route with counsel.
- Check authorised capital and articles.
- Obtain approvals and valuation.
- Control offer recipients and banking.
- Complete allotment and filings.
- Reconcile registers, certificates and cap table.
Practical Example
Evidence to Keep
- Board and shareholder approvals.
- Valuation and pricing memo.
- Offer and application documents.
- Subscription bank statement.
- Allotment minutes and return.
- Share certificates and member register.
Warning Signs
- Receiving cash or unrelated-party funds.
- Changing terms after money arrives.
- Backdating offer documents.
- Updating the cap table before allotment.
- Ignoring foreign-investment reporting.
Management Decision
Prepare a closing checklist that prevents any team from announcing the round or issuing cap-table confirmation before legal completion.
Model dilution and rights before approval. A technically compliant issue can still breach a shareholders’ agreement or economic promise.
Record the decision, owner, due date and evidence expected. A verbal explanation should become an approved working, board note, contract amendment, statutory filing or reconciliation before the item is treated as closed.
Rules, forms, thresholds and procedures can change. Use the latest official source and the actual company facts rather than copying a prior-year control or another entity’s legal position.
Exception Review
Classify every exception as a timing difference, data error, missing document, legal non-compliance, control-design gap or control-operating failure. This prevents management from treating fundamentally different problems as one ageing list.
The exception file should show amount or exposure, root cause, immediate correction, preventive action, owner and board-escalation threshold. Repeated low-value issues can become material when they reveal weak systems or management override.
Close the item only after the evidence agrees across source documents, books, portal data and management reporting. A screenshot or email promise is not equivalent to a completed filing, lender waiver, signed contract or reconciled ledger.
Board Escalation
The control should operate across the full transaction population, not only the samples management expects a reviewer to inspect. For this topic, the key stages are pre-issue, offer, allotment, post-allotment. Each stage should identify the source system, preparer, reviewer, deadline and evidence retained.
A useful management review asks whether the legal document, accounting entry, bank movement, tax treatment and public filing describe the same event. Differences may be valid, but they should be reconciled through a dated working rather than explained from memory during audit or diligence.
Materiality should determine escalation, not whether the company keeps a record. Repeated small exceptions can show weak master data, unclear authority, system bypass or management override. Root cause and preventive action should therefore be documented separately from the immediate correction.
Corporate action should follow the correct sequence: authority, offer or decision, execution, money or asset movement, filing, statutory-register update and public-record verification. Reversing the sequence can create a transaction that is commercially agreed but legally incomplete.
Before any fundraising, restructuring or lender diligence, compare the articles, shareholders’ agreement, board records, statutory registers and MCA data. A mismatch in ownership, director authority or charge status should be escalated before closing documents are signed.
Common Questions
Are rights issues and private placements interchangeable?
No. They have different legal routes, persons and procedures.
Can shares be allotted before valuation?
Pricing and valuation requirements should be resolved before the issue, particularly for tax and foreign investment.
When should the cap table change?
After valid allotment and issuance, with a separate view for committed but unissued instruments.
Does foreign money require extra reporting?
Yes. FEMA route, pricing, sectoral conditions and RBI reporting may apply.
Official Sources
Use the latest official law, rule, portal instruction and executed company document before filing, issuing, remitting, recognising or taking a board position.