07 November 2026 · Updated 07 November 2026
By Avil Rakshith Salins, Practising Company Secretary
Taking money from a foreign angel investor: the FEMA and Companies Act steps
When a startup issues shares to an investor outside India, two sets of rules run side by side: the Companies Act for the issue itself, and FEMA for the foreign investment. The order matters: price the shares at fair value, pass the resolutions, receive the money through the bank, allot within 60 days, file PAS-3 within 15 days and FC-GPR within 30 days.
FEMA and RBI filings in Bengaluru →
Sources
- Companies Act, 2013, sections 42, 62 and 117 (MCA Acts page)
- Companies (Prospectus and Allotment of Securities) Rules, 2014, rules 9B and 14 (MCA Rules page)
- RBI Master Direction – Reporting under Foreign Exchange Management Act, 1999
Verify the primary source current on the date of your filing.
Practice areas
In short: a startup that issues shares to an investor outside India follows the Companies Act for the issue and FEMA for the foreign investment. Price the shares at fair value, pass the resolutions, receive the money through the bank, allot within 60 days, then file PAS-3 within 15 days and FC-GPR within 30 days.
The steps, in order:
- 1. Check the route. Most sectors allow foreign investment under the automatic route, without prior approval, subject to sectoral caps and conditions.
- 2. Fix the price. Shares issued to a person resident outside India cannot be priced below fair value, supported by a valuation from a chartered accountant, a SEBI-registered merchant banker or a practising cost accountant.
- 3. Approve the issue. For a private placement, the board approves the offer and the shareholders pass a special resolution (sections 42 and 62(1)(c)), filed in MGT-14 within 30 days. The offer letter is issued in PAS-4 and recorded in PAS-5.
- 4. Receive the money. The investor pays from their own bank account into a separate bank account of the company. The bank issues a foreign inward remittance certificate and a KYC report on the investor.
- 5. Allot within 60 days of receiving the money, or refund it.
- 6. File PAS-3 with the Registrar within 15 days of the allotment.
- 7. File FC-GPR on the RBI's FIRMS portal within 30 days of the allotment, after the company's Entity Master registration.
- 8. Issue the shares: in demat form if the company is covered by rule 9B, otherwise share certificates within two months.
- 9. Every year after that, file the FLA return by 15 July while the investment is on the books.
Common mistakes: money received before the resolutions are passed, an allotment more than 60 days after the money arrived, a price below the valuation, and FC-GPR filed late. Each can be fixed, but some need a late submission fee or a compounding application, so the order above is worth keeping.
This note gives general information on the law as on 7 November 2026. It is not advice on any particular matter.
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