The term sheet is signed, the money’s coming, and it feels like the hard part is over. Then your CA hands you a checklist of valuations, forms, resolutions and deadlines — and you realise the paperwork has only just begun.
Issuing shares to an investor in India isn’t a handshake and a bank transfer. It’s a defined legal process with hard clocks. Here’s what actually happens after you sign.
The short version
- A fresh investor round is a private placement under Section 42 of the Companies Act.
- You need a registered valuer’s valuation before you can price the shares.
- The money sits in a separate bank account and you can’t touch it until you file the return of allotment (PAS-3).
- Hard deadlines: allot within 60 days, file PAS-3 within 15 days of allotment, issue share certificates within 2 months.
- Miss them and you’re into refunds, 12% interest and penalties.
When a startup raises from named investors — a VC, a few angels — it’s almost always a private placement under Section 42: an offer to a specific, capped set of investors (up to 200 in a financial year, not counting institutional investors or ESOP-holders), not a public offer. You can’t advertise it. Here’s the sequence, with the clocks that actually bite:
You cannot use the money until PAS-3 is filed.
01The trap inside Step 3
02The deadlines that trip people up
- Valuation — before you price the shares.
- Special resolution + PAS-4 offer letter — before you take the money.
- Money — separate account, untouched until PAS-3.
- Allotment — within 60 days of receiving funds.
- PAS-3 — within 15 days of allotment.
- Share certificates — within two months of allotment.
03The bottom line
A funding round isn’t finished when the term sheet is signed. It’s finished when the shares are properly valued, allotted, filed and certificated. Get the sequence and the deadlines right and the money is clean and usable. Get them wrong and you’re refunding investors with interest — or explaining a Section 42 breach during your next round’s due diligence.
This article is for general information and isn’t legal or tax advice. Rules, forms and timelines change, and your situation deserves advice specific to it.
Frequently asked questions
How do startups issue shares to investors in India?
Through a private placement under Section 42 of the Companies Act — a registered-valuer valuation, a special resolution, a PAS-4 offer letter, allotment within 60 days, and a PAS-3 return of allotment within 15 days.
What is Form PAS-3?
The return of allotment, filed with the ROC within 15 days of allotting shares. You can’t use the investor’s money until PAS-3 is filed.
Do I need a valuation to issue shares?
Yes. A registered valuer values the shares before you price them, and the issue price can’t be unsupported by that valuation. Foreign investors trigger an additional FEMA fair-value rule.
How long do I have to allot shares after receiving the money?
Sixty days from receipt of the application money. Miss it and you must refund within 15 days or pay 12% annual interest from day 61.
When must share certificates be issued?
Within two months of allotment, with stamp duty paid and the register of members updated.
Read next
Part of A Founder’s Guide to Startups in India — structure, funding, ESOPs & compliance.
Quick answers: How to issue shares to an investor · How is a startup valued? · ROC filings after a raise
