This step-by-step approach ensures that you:
✔️ Raise ₹20 crore at ₹100 crore valuation
✔️ Retain at least 80% control as a founder
✔️ Legally structure ₹50 lakh personal investment properly
✔️ Comply with MCA and ROC regulations
📌 Step 1: Your Company’s Current Status
| Aspect | Current Status |
|---|---|
| Year of Incorporation | 2016 |
| Authorized Share Capital | ₹1 lakh |
| Paid-Up Capital | ₹1 lakh |
| Current Valuation (Estimated) | ₹100 crore |
| Bank Balance | ₹5 lakh |
| Fundraising Target | ₹20 crore |
| Desired Founder Control | At least 80% |
| Immediate Founder Investment | ₹50 lakh |
📌 Step 2: Key Challenges That Need to Be Addressed
🚨 Problems Identified:
✅ Problem 1: Authorized Share Capital is too low (₹1 lakh) to issue ₹20 crore worth of shares.
✅ Problem 2: You need to structure ₹50 lakh personal investment before external investors join.
✅ Problem 3: If you directly issue ₹20 crore worth of shares, founder control may drop below 80%.
✅ Problem 4: Company does not have ₹100 crore in bank assets, so valuation justification is required.
✅ Problem 5: Right Issue can be considered to raise funds from existing shareholders before external investors.
📌 Step 3: Action Plan to Solve These Issues
🔹 Phase 1: Increase Authorized Share Capital (NO Money Required)
Since your Authorized Capital is ₹1 lakh, you cannot issue ₹20 crore worth of shares unless you increase it first.
✅ Increase Authorized Capital to ₹10 crore (not ₹100 crore yet).
✅ This ensures flexibility without unnecessary compliance costs.
How to Increase Authorized Capital?
1️⃣ Board Meeting – Pass a resolution for an increase in Authorized Share Capital.
2️⃣ EGM (Extraordinary General Meeting) – Get shareholder approval.
3️⃣ File SH-7 & MGT-14 with MCA – Officially update the MOA.
📌 After This Step:
- New Authorized Capital: ₹10 crore
- Paid-Up Capital Remains ₹1 lakh
🔹 Phase 2: Structuring ₹50 Lakh Founder Investment
Since the company needs money immediately, you can invest ₹50 lakh properly using one of these methods:
| Method | Pros | Cons |
|---|---|---|
| Equity Investment (Buying New Shares at ₹10 per share) | ✅ Increases founder ownership officially | ❌ Minor dilution when issuing new shares |
| Convertible Loan (CCD / CCPS) | ✅ Converts to equity later, allowing flexibility | ❌ Needs proper agreement |
| Director Loan to Company | ✅ Simple, repayable | ❌ No ownership increase |
📌 Recommended:
1️⃣ Issue New Shares at ₹10 per Share (before valuation increase).
2️⃣ You get 5 lakh new shares for ₹50 lakh.
3️⃣ This ensures founders hold a strong position before external investors join.
After Founder Investment:
| Aspect | Before | After ₹50L Investment |
|---|---|---|
| Authorized Capital | ₹10 lakh | ₹10 crore |
| Paid-Up Capital | ₹1 lakh | ₹50.01 lakh |
| Founder Shareholding | 10,000 shares | 5,10,000 shares |
| Total Shares | 10,000 | 5,10,000 |
📌 Now, the founder has majority shares before new investors join.
🔹 Phase 3: Consider a Rights Issue Before External Investment
A Rights Issue can be an alternative way to raise funds from existing shareholders first.
Pros of Rights Issue:
✔️ Gives founders a chance to invest first before external investors join.
✔️ Helps raise money without diluting founder control significantly.
Cons of Rights Issue:
❌ If founders & existing shareholders do not have enough money, then it may not work.
❌ If the company needs quick money, Rights Issues can take 30+ days.
📌 Recommended Action:
1️⃣ Offer Rights Issue at ₹50 per share to founders and existing shareholders.
2️⃣ Founders invest ₹50 lakh via the Rights Issue instead of direct purchase.
3️⃣ If all shares are not subscribed, they can be offered to external investors.
🔹 Phase 4: Raise ₹20 Crore from External Investors
After securing founder control, issue new shares for ₹20 crore at ₹100 crore valuation.
How to Structure the Investment?
1️⃣ Pre-Money Valuation: ₹100 crore
2️⃣ Investment Amount: ₹20 crore
3️⃣ Post-Money Valuation: ₹120 crore
4️⃣ Investor Equity Required: (20120)×100=16.67%\left(\frac{20}{120}\right) \times 100 = 16.67\%
5️⃣ New Shares to Be Issued:
- Share Price (Based on Valuation): ₹1,000 per share
- New Shares Issued to Investors: ₹20,00,00,000₹1,000=2,00,000 new shares\frac{₹20,00,00,000}{₹1,000} = 2,00,000 \text{ new shares}
🔹 Phase 5: Final Shareholding Structure
| Shareholder | Shares Before Investment | New Shares Issued | Final Shares | Final % Holding |
|---|---|---|---|---|
| Founders (After ₹50L Investment) | 5,10,000 | 0 | 5,10,000 | 80.5% |
| Investors (New ₹20 Cr Investment) | 0 | 2,00,000 | 2,00,000 | 19.5% |
| Total | 5,10,000 | 2,00,000 | 7,10,000 | 100% |
📌 Founders successfully retain 80.5% ownership. 🚀
📌 Step 4: Legal Compliance & MCA Filings
Steps for Founder Investment (₹50L)
✅ Board Meeting & Shareholder Approval – For issuing shares.
✅ File PAS-3 (Return of Allotment) – With MCA after issuing shares.
✅ Update Register of Members & Share Certificates.
Steps for ₹20 Crore External Investment
✅ Board Resolution – Approve the new investor funding.
✅ Shareholder Approval (EGM) – If required.
✅ Offer Letter to Investors (PAS-4) – Inform investors about share issuance.
✅ Investment Money Deposited in Company Bank Account.
✅ File PAS-3 (Return of Allotment) with MCA.
✅ Issue Share Certificates to Investors.
📌 Final Summary: Your Optimized Plan
| Step | Action | Why? |
|---|---|---|
| Step 1 | Increase Authorized Capital to ₹10 crore | Allows issuing more shares for investment. |
| Step 2 | Founder invests ₹50 lakh via Rights Issue | Strengthens founder control before external investors join. |
| Step 3 | Raise ₹20 crore from investors at ₹1,000 per share | Ensures investors get 19.5%, founders retain 80.5%. |
| Step 4 | MCA Compliance (SH-7, MGT-14, PAS-3, PAS-4) | Legal compliance for share issuance. |
📌 Would you like draft resolutions & MCA filing templates? 😊