Equity Fund Raise · Question

What legal steps does a private company take to issue shares to an investor?

Short answer

In general, the company agrees terms with the investor, checks its authorised capital and charter documents, obtains board and shareholder approvals, executes the subscription and shareholders agreements, receives the money through banking channels, allots the shares and files the required returns with the registrar. The precise steps depend on the instrument and the investor, so use a company secretary or lawyer.

In more detail

This is a general sequence for orientation. It is not legal advice, and a qualified professional should confirm what applies to your company.

The process usually starts with a term sheet, which sets out headline terms such as amount, valuation and investor rights. It is mostly non-binding. After that, the investor runs due diligence on the company, covering financial, legal and tax records.

Before shares can be issued, the company checks that it has enough authorised share capital. If not, it increases it, which needs the approval route set in its charter and company law. Its articles may also need to change to reflect the rights the investor will get.

The board then approves the issue and calls a shareholders meeting where a special approval is typically needed for allotment to an outside investor. The price is generally supported by a valuation by a registered valuer where the rules require one.

Next come the definitive agreements: a share subscription agreement covering the investment and a shareholders agreement covering rights. The investor transfers funds into the company's bank account, and the company allots shares within the time the law allows, then issues share certificates or credits them in electronic form and updates its registers.

Finally, the company files the necessary forms with the registrar of companies. Where the investor is outside India, additional foreign exchange rules and reporting apply, and these should be checked with an authorised dealer bank and an adviser.

Do not allot before approvals

Issuing shares without the proper approvals or taking money before the process is in place can create defects that are costly to correct later. Follow the sequence your adviser lays out.

Stamp duty, tax treatment and sector-specific permissions may also apply, so ask about these at the start rather than at the end.

Key points

A term sheet and due diligence normally come before any shares are issued.
Check authorised capital and articles of association before approving the issue.
Board and shareholder approvals, plus a valuation where required, support the allotment.
Funds come through banking channels, followed by allotment and registrar filings.
Foreign investors trigger additional exchange control rules that need specialist input.

Who this applies to

Directors of private companies preparing to accept outside investment.
Finance heads coordinating with company secretaries and lawyers.
Founders unsure how a signed term sheet turns into actual shares.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.