[Editorial notes: Indians startups are raising funding from investors outside the country and one of the important considerations that one needs to understand is of compliance checks  when you receive the funding. This guest post by Brijesh Bharadwaj, the founder of TunePatrol shares practical tips on compliance checks.]

TunePatrol.com recently raised angel money and one of the investors is a Singapore based angel fund. I have decided to dish out some gyaan on how to ensure complaince for your Private Limited company when you recieve that money.money

1. Find out your bank’s SWIFT code

 So each bank would have this code which is needed for your investor to make the transfer. Ask your bank manager for this and then give your account details to the investor to make a SWIFT transfer directly into your account.

2. Intimate RBI

At this point there can be two scenarios

a) Your bank recieves the money in the foreign currency

If your bank recieves the money in foreign currency (say it recieves US $) then your bank is supposed to give you a call and tell you that it has recieved money in so and so currency and ask you when to do the conversion to INR , after this you need to file an intimation with the RBI telling them that you recieved FDI into your company through your bank within 30 days of recieving the funds.

Checklist for this intimation

  • A letter from your company stating the transaction details and the purpose of the FDI recieved and if the intimation is being filed late, the reason for the late intimation (to be given to your bank)
  • Report by the Indian company receiving amount of consideration for issue of shares /Convertible debentures under the FDI Scheme (Annexure – 6) – Your bank will give you the form, take a print out, fill it up and give it back to them
  • Know Your Customer (KYC) Form in respect of the non-resident investor (Annexure – 7) – This needs to come from the investor’s bank and will be sent to your bank through SWIFT again.
  • FIRC copies – Will be issued by your bank, you dont need to worry.

Now your bank will compile all the documents and send it to RBI (you don’t have to)

b) The investor’s bank has an Indian subsidary, the foreign bank sends the money to that subsidary, the subsidary makes the conversion and you get exactly how much your were supposed to in INR.

Now in this case everything else remains the same apart from the fact that now the subsidary bank needs to send the FIRC copies to your bank.

3. Issue shares

Once this intimation is sent, your next step is to actually issue the shares to the foreign investor within 180 days of receiving the funds, failing which you are bound by law to transfer the money back to your investor.

4. Report the issual of shares to RBI

So assume you actually issued the shares, now you have to file FC-GPR (Annexure 8) [your bank will give the form again] with the RBI within 30 days of issuing the shares.

Checklist for this filing

  • FC-GPR (Annexure 8)
  • FIRC Copies
  • A Certificate from the Company secretary for FEMA compliance (I hope you have a company secretary, if not find one, tons of service providers available)
  • A Certificate from CA indicating the manner of arriving at the price of shares issued to the persons resident outside India (Discounted cash flow method is what he should use so he will also prepare a 5 yr projection for your company)
  • A letter stating the reason for delay in submission of FC-GPR (in case of delay)
  • Debit authority letter (your bank will do this, for a price)

Again, these are compiled and filed together by your bank.

And then you are done!

Cost

  • Certificate from Company secretary – INR 5000 – 10000
  • Certificate from CA – INR 15000 – 20000
  • Debt authority letter – INR 5000

Pro Tip : Make sure your startup is allowed to take FDI in the automatic route (e-commerce startups beware).

[Reproduced from Brijesh's post].

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