The legal side of raising capital for a private company in India — structuring ownership, bringing in investors, and issuing the right instruments, from a founders' agreement through to a private placement.
Quick Summary
Raising capital for a private company is as much a legal exercise as a financial one. Every round of funding rests on a stack of documents — who owns the company and on what terms, what rights an investor receives, and how the securities are issued under the Companies Act, 2013. Done well, that stack is coherent and holds up at the next round; done loosely, it becomes the problem a future investor's advisers find. This is the firm's corporate-finance practice: the legal structuring and documentation behind a company's fundraising, from its first founders' arrangement to bringing in outside investors.
The journey usually runs in a sequence. Founders fix their own arrangement in a founders' agreement; the owners' relationship and investor rights are set in a shareholders' agreement; capital is raised by private placement under Section 42; and the investment is shaped through the right instrument — ordinary shares, preference shares, or convertible debentures. Luke & Luka advises founders, companies, and investors across this sequence, keeping each document aligned with the next so the company's cap table and paperwork stay clean as it grows.
Key references: Ministry of Corporate Affairs · Companies Act, 2013 (India Code) · SEBI · Last reviewed: June 2026
When people talk about a company "raising money", the attention usually falls on the number — how much, at what valuation. But underneath every round of funding is a legal structure that determines what the money actually buys, what the investor can do, and whether the company's ownership stays coherent as it grows.
That legal structure is what corporate finance, in the legal sense, is about. It is the set of documents and steps through which a private company brings in capital: who owns the company and on what terms, what rights an investor receives in exchange for their money, and how the securities are issued in compliance with the Companies Act, 2013.
The running record of all this is the company's cap table — the list of who owns what. Every fundraising decision writes to it, and keeping it clean, accurate, and matched to the underlying documents is, in practice, the central discipline of company fundraising. A round closes smoothly when the paperwork and the cap table agree; it stalls when they do not.
A company's fundraising tends to follow a sequence, each stage building on the one before. The legal work at each stage is handled by a distinct document — and each is covered in detail on its own page.
Before any outside money, the founders settle their own arrangement — how equity is split, how it vests, who does what, and who owns the intellectual property. This is the base of the cap table, and it is set in a founders' agreement. Getting it right early is what makes every later round cleaner.
As the company takes on investors, the relationship among all the owners is governed by a shareholders' agreement — board composition, the decisions that need investor consent, restrictions on transferring shares, anti-dilution protection, and exit. It is the framework an incoming investor joins, and the protection the existing owners rely on.
The capital itself is raised by private placement under Section 42 of the Companies Act — an offer of securities to a select group of identified investors, within the 200-investor limit, through a defined process of resolutions, offer letter, allotment, and filing. It is the mechanism by which the investment is actually made.
The investment can take different forms, and the choice shapes the deal. Ordinary equity shares give ownership and voting. Preference shares give priority on dividends and on return of capital, and are often issued to investors as compulsorily convertible preference shares. Convertible debentures begin as debt and convert to equity later, useful for deferring a valuation or bridging to the next round. Each carries different rights and risks — and where the investor is overseas, foreign-investment rules treat the instruments differently, which makes the choice a legal decision as much as a commercial one.
The single most important thing about these documents is that they have to agree with each other. The instrument issued in the private placement must match what the shareholders' agreement promises; the rights in the agreement must be reflected in the company's articles; and the cap table must record all of it accurately.
This alignment is what a future investor's advisers test at the next round. They will read the documents against the cap table and against each other, and any gap — a right promised but not reflected, shares issued on terms the paperwork does not capture — becomes a question that has to be answered, and sometimes renegotiated, before the next round can close.
The firm works across the fundraising journey, for founders, companies, and investors:
The aim across all of it is a fundraise that is clean on its own terms and that holds up when it is examined — at the next round, in a due diligence, or in a sale. Subject to the applicable law and the specific facts, each document is drafted to align with the others and with the company's constitution, so the company's capital structure remains coherent as it grows.
A typical fundraise rests on several documents, each doing a distinct job. A founders' agreement records the founders' own arrangement — equity, vesting, and roles. A shareholders' agreement sets out the relationship among all the owners, including any investor, and the investor's rights. The capital itself is raised by private placement under Section 42 of the Companies Act, 2013, through board and shareholder resolutions and a private placement offer letter, followed by allotment and the return of allotment. Depending on the deal, the investment may also involve a term sheet at the outset and a share subscription or share purchase agreement. The documents are most effective when they are drafted to align with one another.
Broadly, the sequence follows the company's life. Founders settle their own arrangement first, in a founders' agreement, ideally at or before incorporation. When the company is ready to raise, the terms with the incoming investor are usually agreed in outline in a term sheet, then set out in full in a shareholders' agreement and, where used, a subscription agreement. The capital is then raised through the Section 42 private placement process — resolutions, offer letter, allotment, and filing. Putting the founding documents in place early makes each later step cleaner, because the base of the cap table is already settled.
Ordinary equity shares give the investor ownership, voting, and a share of the company's residual value. Preference shares give priority — typically on dividends and on the return of capital if the company is sold or wound up — and are often issued to investors as compulsorily convertible preference shares that convert into equity later. Convertible debentures begin as debt that converts into equity, and are used to defer setting a valuation or to provide bridge funding. The choice of instrument shapes the investor's risk, return, and rights, and is one of the central decisions in structuring a round — particularly where the investor is overseas, since foreign-investment rules treat these instruments differently.
A cap table — short for capitalisation table — is the record of who owns the company, how many shares each holder has, and on what terms. It matters in fundraising because every new round changes it: shares are issued, ownership percentages shift, and new rights attach. A clean, accurate cap table that matches the company's documents is what lets a round close smoothly and what an incoming investor's advisers examine first. A cap table that does not match the paperwork — because earlier documents were loose or inconsistent — is a frequent cause of delay or renegotiation at the next round.
It can issue shares without one, but it is rarely advisable, and an institutional investor will almost always require a shareholders' agreement before investing. The agreement is where the investor's rights — board representation, consent over major decisions, anti-dilution protection, and exit terms — are recorded, and where the existing owners' protections are set. Raising money without it leaves the relationship between the company, the founders, and the new investor undefined, which is precisely where disputes arise. In practice, the shareholders' agreement and the fundraise go together.
The firm advises founders, private companies, and investors on the legal structuring and documentation of fundraising in India — founders' and shareholders' agreements, private placements, and the instruments used to raise capital. Matters are handled for clients in Kerala and across India.
luka@lukeandluka.in+91 96057 61330