Convertible debt for an nri director
Subrat Patra
(Querist) 23 July 2015
This query is : Resolved
Hi,
We are a startup and just got incorporated (17th Jul'15). Me and my wife are the directors in the new company with a 1L capital. The company will provide online gaming solutions to enhance skills of individuals (primarily children) through a subscription based revenue model.
In order to start the operations we would need funds and hence will be appointing a 3rd Director (NRI friend) into the company. Once inducted we would look at a Loan from him which will be a convertible debt. An agreement will be executed highlighting the terms and conditions of the loan conversion to equity. The important one's being the following:
1. Interest rate of 9%
2. Tenure of 2 yrs
3. Conversion to happen when 2nd investor is wiling to invest
4. Valuation to be mutually agreed upon between Company & 2nd investor
5. Conversion to Equity @ Discount of 20%
Loan amount to come from his NRE/O account. He is also ok to transfer the balance fund directly to the company's account. The whole amount will come over a period of 3-6 months.
Pls suggest the most appropriate way of executing the whole transaction and the compliances involved.
Regards
Subrat
P. Venu
(Expert) 24 July 2015
What is the legal issue involved?
Subrat Patra
(Querist) 24 July 2015
That is precisely the question. Want to understand the legal aspects especially from Corporate Law angle and also from FEMA/RBI/FDI aspects.
KUMAR JAGADEESAN
(Expert) 24 July 2015
Dear Mr.Patra
There are a quite a few procedural and legal compliances under Companies Act,2013, FEMA for which a detailed discussion has to take place. I would advice that you please contact a practicing company secretary/ corporate lawyer . But what you have in mind is possible with certain restrictions as to return etc.
M V Gupta
(Expert) 25 July 2015
While I agree with the observations of Expert Shri Jagadeesan, I may add that as urs is a Pvt Ltd Company and if ur NRI friend holds OCS card many of the restrictions may not apply.
Subrat Patra
(Querist) 25 July 2015
Thanks a lot to Mr. Kumar n Mr.Gupta. Will take it up with the concerned experts.
T. Kalaiselvan, Advocate
(Expert) 28 July 2015
As suggested you may better consult a company or corporate law practicing lawyer or a company secretary to get the first hand information and proper guidance.
