Early-stage venture capital (VC) investments are predominantly implemented through hybrid equity instruments, such as convertible instruments. The convertible instruments could be optionally convertible preference shares (OCPS), compulsorily convertible preference shares (CCPS), optionally convertible debentures (OCDs) or compulsory convertible debentures (CCDs). OCPS, CCPS, OCDs and CCDs are, for ease, referred to as “equity-linked instruments”, and are preferred over equity shares – ie, common stock for structuring differential returns and special rights (including a liquidation preference). By issuing equity-linked instruments, the founders are able to delay dilution as well as retain their control over management and decision-making in the venture.

OCPS and CCPS

Preference shares (whether convertible, optional or compulsory) are currently the most used instrument for start-up investments due to various advantages such as the ability to fix the stake in the company through a conversion mechanism, superior liquidity due to a liquidity preference and repayment of share capital in the event of default. The key advantage of these shares is the ability to link conversion to the performance of the company. This helps private equity (PE) investors deal with any disparity in the valuation expectation of the venture, where general valuation methods are ineffective in case of start-ups due to extended cash burn caused by long lead times, the absence of profitability, newer revenue models, etc.

OCDs and CCDs

In the initial stages, start-ups lack stability in terms of assets and cash flows, thereby making it difficult to arrive at an accurate valuation of the company. Hence, debentures (whether optionally or compulsorily convertible) are relevant. Debentures, being debt instruments, take precedence over equity shares and preference shares, and thus provide a clear exit or repayment path for investors. Debentures could also be secured so as to provide protection of returns/capital to the investors. Debentures are converted into equity shares, usually in a subsequent round of funding, either at the option of the investor (optional conversion) or at the option of the company/according to the lapse of time (compulsory conversion).

Mezzanine instruments are not used in early-stage investing; rather, they are common during the growth stage of a company and in PE transactions.

Loans and Debt

Early-stage and venture investments are not structured as plain vanilla loan or debt. Convertible notes structured as debentures are more common. Cross-border loans and debt are subject to the regulations issued by the Reserve Bank of India (RBI) and various conditions including qualification criteria, end use and caps on cost/return.

All equity-linked instruments are subject to conditions under the Indian exchange regulations (viz the Foreign Exchange Management Act, 1999 (FEMA) and rules and regulations issued thereunder) as well as the Companies Act, 2013. For example, non-resident investors cannot subscribe to or acquire “optionally convertible” instruments, unless structured under the right investment pathway. While some equity-linked instruments may involve complex regulatory/compliance requirements, others may pose challenges related to security, valuation, a cap on returns or other conditions. Hence, it is important to carefully assess these implications and choose the right instrument depending on the target venture opportunity.

Unlike early-stage or venture financing, which frequently relies on hybrid instruments such as equity-linked instruments, PE investors often prefer equity shares to secure governance rights and economic participation without the uncertainty of conversion, and ensuring alignment of interests through a combination of governance and management rights and obligations of the founders versus investors.

A Different Class of Equity Shares

A private company (and public companies, subject to conditions) can issue a different class of equity shares with differential economic rights and/or differential voting rights (“DR shares”). These shares are typically used to structure incentives/promotions for the founders or to rebalance the equity holding in certain situations in growth or PE transactions.

Investment in equity shares (including DR shares and share warrants) is subject to conditions under the foreign direct investment (FDI) policy of FEMA, such as pricing guidelines and sectoral caps.

Investors in both growth and PE transactions seek, through shareholders’ agreements (SHAs) and share subscription/purchase agreements, various rights such as board seats, observer rights, affirmative voting rights over reserved matters, pre-emptive rights, tag-along and drag-along rights, rights of first refusal, etc. Careful consideration of implications under the Companies Act and the Competition Law is key when seeking such rights.

Restructurings, such as mergers, are used to consolidate businesses or create scale prior to investment, while demergers are often employed to hive off specific verticals to attract targeted PE funding. Late-stage deals commonly involve secondary purchases of shares from promoters or early-stage PE investors.

In India, the equity listing process involves a range of regulatory compliances and strategic considerations. It requires strict adherence to disclosure norms and transparency standards, as the company is offering its shares to retail investors. The two national stock exchanges of India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Equity listings can be either fresh issuances by the company or offers for sale by existing shareholders.

The equity listing process in India is primarily governed by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. To be eligible for public offerings, a profitable company must meet certain parameters, including but not limited to financial thresholds like maintaining a net worth of at least INR10 million and net tangible assets of INR30 million in each of the preceding three financial years. Alternatively, a non-profitable company is required to meet certain requirements like following the book-building route and allocating a minimum of 75% of the issue to qualified institutional buyers. The process begins with the filing of a draft offer document, referred to as the Draft Red Herring Prospectus, with the Securities and Exchange Board of India (SEBI). Following SEBI’s observations and necessary explanations, the final Red Herring Prospectus is filed with SEBI and the Registrar of Companies. The issue then opens for subscription using the application supported by blocked amount (ASBA) process, after which the company proceeds to allot shares to eligible allottees.

Looking at the data, public markets in India are becoming increasingly significant. The surge in IPO activity, with 318 companies raising over INR1,720 billion in FY 2025, reflects growing investor participation and confidence. Typically listed companies cover a wide spectrum, including large conglomerates and established industrial behemoths (eg, in oil and gas, manufacturing and chemicals), major financial services companies (eg, banks, insurance companies and non-banking financial companies; NBFCs) and IT giants. In recent years, there’s also been a significant surge of high-growth technology and unicorn start-up companies (eg, in e-commerce, fintech and digital services) going public, reflecting the market’s maturity and appetite for new-economy businesses.

For companies, listing brings several advantages such as improved valuations, greater visibility, wider participation from both institutional and retail investors and increased liquidity. While many companies pursue listing to raise capital and improve investor confidence, others may choose to remain unlisted to avoid the increased regulatory scrutiny and corporate governance obligations. As a result, it is not uncommon to see some larger public companies staying unlisted, while smaller companies opt for listing based on their strategic goals and willingness to comply with regulatory norms.

Common types of equity restructurings in India include the following.

• Issuance of new shares: Companies may issue additional shares to raise capital, typically through private placement or preferential allotment under the Companies Act, 2013. Such issuances often result in dilution for existing shareholders who do not participate. A right issued under the Companies Act, 2013 grants existing shareholders the option to subscribe for further shares, usually at a discounted price or at par value, pro rata to their shareholding. Rights issues are less dilutive if all shareholders participate, but those who decline may face value erosion.

• Debt-to-equity swaps: These enable creditors to convert outstanding debt into equity. Debt-to-equity swaps help reduce leverage but dilute existing shareholders, often triggering anti-dilution clauses in shareholder agreements.

• Down-rounds: A down-round occurs when new shares are issued at a lower valuation than in the previous funding round. These are usually structured as private placements or preferential allotments under the Companies Act. Down-rounds are undesirable as they depress the company’s market perception, hurt founder equity and harm earlier investors.

• Hybrid instruments: Companies often issue equity-linked instruments for debt-like financing in stressed situations. They are particularly common as they defer equity dilution and give the founders a “lease of life” to turn the company around. Unlisted companies also resort to raising capital through listed bonds/debentures.

• Asset monetisation: Companies often issue spin-offs or sale of a non-strategic business (including asset or business transfer arrangements) to create liquidity and pare down the debt on their books.

• Reverse listing: Founders may also resort to merging an unlisted company into a listed company, thereby providing the ability to raise capital through the issuance of preference shares and/or improvising to raise debt capital from domestic capital as a listed company.

Corporate governance arrangements may vary depending on the type and size of the company, the level of investor involvement and applicable regulations. For example, PE investors in unlisted companies often negotiate veto rights, board and committee representation, and anti-dilution protections, whereas shareholders of public companies listed on Indian stock exchanges (NSE/BSE) primarily rely on protective rights under the Companies Act, exercised through general meetings and limited board-related provisions.

For private companies in India that have more than one external investor, it is common for the shareholders to enter into an SHA reflecting the key terms in the articles of association (AOA) to strengthen the enforceability of these rights. Investor protection provisions are often built into both the SHA and the AOA.

The SHA sets out the governance and management rights and obligations. The governance framework includes rights in relation to representation on the board of directors (including key committees of the board, such as the Audit Committee), a procedure for calling board meetings (including the right of the investor nominee to be present for a valid quorum), matters requiring prior consent of investors at board and shareholder meetings (ie, affirmative veto rights) and determining which rights shall be provided to investors in respect of decisions relating to any change in the capital structure, restructuring, borrowings, dividend distribution, etc. Management rights include the right to appoint/have a say in the appointment of key management team personnel (such as the CEO) and the right to approve a business plan, capital expenditure (capex), etc. Protective rights include anti-dilution rights, restrictions on the transfer of shares, including lock-in on promoter holding, the right of first offer (ROFO)/right of first refusal (ROFR)/tag-along rights in case of exits, as well as the right to force an exit in the event of default, such as a strategic sale or put/call options. SHAs may also cover planned exits such as IPOs.

The level of protection afforded to investors is negotiated between investors and promoters/other shareholders.

Outside Contractual Protections

Indian law also provides statutory protections to shareholders under the Companies Act, 2013. Some basic rights include members’ right to inspect the registers of members and directors, and the register of charges, and the rights to receive copies of audited financial statements, requisition and attend general meetings, and vote on matters.

Where investors appoint nominee directors, those nominee directors are subject to fiduciary duties under the Companies Act, 2013 and are expected to act in the best interests of the company, though practically they represent investor interests.

Certain matters under the Companies Act, 2013 require resolutions to be passed, including ordinary resolutions (requiring the approval of more than 50% of shareholders) for matters such as the appointment and removal of directors, approval of financial statements, etc, and special resolutions (requiring the approval of at least 75% of shareholders) for matters like alteration of AOA, change in company name, mergers, reduction of share capital, etc.

Additionally, the Companies Act, 2013 also has provisions that allow minority shareholders to approach the National Company Law Tribunal (NCLT) in cases of oppression and mismanagement. The NCLT has wide-ranging powers, including altering the board composition, restricting share transfers, setting aside prejudicial transactions and even ordering buyouts of minority shareholders. In extreme cases, it can also order winding up.

For listed companies, the SEBI (Listing Obligations Disclosure Requirements) Regulations, 2015 supplement the Companies Act by requiring disclosure of governance practices, the constitution of mandatory committees such as the Audit Committee, Nomination and Remuneration Committee and Stakeholders’ Relationship Committee approval thresholds for related party transactions, etc. These regulations ensure higher governance standards, protect investor interests and improve transparency in listed entities.

Investors may provide equity financing, debt financing or a mixture of both to the same company. This dual-investment approach is often structured through a mix of equity shares or preference shares and debt instruments such as non-convertible debentures (NCDs), OCDs or CCDs. The basic reason behind doing so is to balance risk and reward, since equity offers the potential for high returns if the company performs well, while debt provides fixed (albeit lower) returns, priority in repayment and protection of capital.

Debt markets in India are also diverse, offering various options such as bank loans, NCDs, external commercial borrowings (ECBs), venture debt and private credit. Ultimately, the choice between equity and debt financing depends on factors such as the company’s capital structure, growth prospects, risk profile and cost of capital. Many companies in India use a combination of both equity and debt financing to optimise their capital structure and meet their funding needs.

Debt financing entails borrowing funds that must be repaid over time with interest. This allows businesses to raise capital without diluting ownership but imposes a legal obligation to adhere to the terms of the loan agreement. Key contractual obligations in debt financing include repayment terms, interest rates, collateral and covenants restricting business activities. It is important to note that mismanagement can trigger default and even corporate resolution or insolvency proceedings under the Indian Insolvency and Bankruptcy Code, 2016 (IBC). As an investor, being a financial creditor (through a holder of secured debentures) does provide an advantage under IBC proceedings but this depends on the exact terms under the financing documents as well as nature and quantum of other financial creditors in the company. By being a financial creditor, the investor is eligible to be part of the Committee of Creditors (CoC), with voting rights, thereby influencing the resolution plan and also being eligible to take priority in repayment due to their secured status.

Equity finance involves raising capital through the issuance or sale of shares in a company. The Companies Act, 2013 provides a comprehensive legal framework that facilitates such equity financing activities across different stages of a company’s life cycle. At the initial stage of incorporation, capital is typically raised through equity shares and preference shares, but as it progresses in its life cycle and seeks long-term funding for further growth, the company starts to rely on raising additional capital from existing investors through rights issues, as well as from PE investors (via private placement or preferential allotment).

Depending on its business plan, the company may then raise debt capital through hybrid instruments (equity-linked instruments), loans (ECBs from offshore lenders or loans from domestic banks and non-bank institutions (NBFCs)) or bonds/NCDs (listed/unlisted). At a more advanced stage, companies may access the public markets via IPOs (fresh issuance of capital or offer for sale to provide an exit to its early-stage investors).

In India, different capital providers are involved at various stages of a company’s growth trajectory. Early-stage financing is typically provided by incubators, angel investors, family offices and VC funds, sometimes supplemented by government-backed initiatives such as the Startup India Fund of Funds. At the growth and PE stage, companies generally attract domestic and international PE funds, institutional investors and strategic investors. Public companies may also raise capital through IPOs and follow-on public offerings (FPOs), which broaden access to retail and institutional investors. Foreign investors play a significant role across all stages, subject to sectoral caps and conditions under the FDI policy.

Under the Companies Act, 2013, the ability of companies to raise equity finance is shaped by shareholding limits. A private limited company must have a minimum of two shareholders and cannot exceed 200 shareholders (excluding employee shareholders and past employees who remain members), and is prohibited from inviting the public to subscribe to its shares. In contrast, a public limited company must have at least seven shareholders, with no statutory maximum shareholders limit, and is permitted to raise funds from the public through IPOs and FPOs. In terms of FDI policy, foreign investors can hold up to 100% in most sectors/industries, although in some sectors foreign investment is subject to conditionalities (eg, e-commerce, insurance, real estate development and the defence sector, where FDI is capped at 74% under the automatic route). FDI in any company (whether through subscription to primary shares or through the acquisition of secondary shares) is subject to entry and exit pricing guidelines.

Qualitative restrictions continue to apply under FEMA. For example, sectors such as gambling, real estate business (trading in land for profit), the construction of farm houses, chit funds, Nidhi companies, etc, are fully closed to foreign investment. Further, investment from countries sharing land borders with India (China, Pakistan, etc) in any sector requires prior government approval to ensure scrutiny of ultimate beneficial ownership. In addition, special requirements apply to certain sectors as per regulations/directions prescribed by their regulators; for example, the RBI “fit and proper” criteria for banks and NBFCs. The RBI has also imposed a 10% cap on voting rights in banks under the Banking Regulation Act and lock-in conditions for investors in banks, and RBI approval is also needed for changes in the shareholding or control of NBFCs.

Foreign portfolio investors (FPIs) are permitted to invest up to a maximum of 10% in listed Indian equities.

Companies seeking capital display significant differences in financing choices based on their size, stage of development, shareholder composition and industry sector; these factors influence both whether they raise debt or equity and the specific structure or technique employed. Early-stage and start-up companies typically adopt a private limited company structure, which is well-suited for equity-based fundraising due to the ease of transferring shares, the possibility of offering employee stock ownership plans (ESOPs) and governance mechanisms that protect investor interests. Equity-linked instruments, including venture debt (primarily CCDs or NCDs), have also emerged as a complementary or alternative source of growth capital, allowing start-ups to raise funds without immediate dilution of ownership.

In contrast, established and larger companies tend to prefer the public company structure and private debt funding for tax optimisation through interest deductibility, the possibility of security creation over assets and assured returns for investors. High-growth sectors such as consumer technology, fintech, software-as-a-service and generative AI generally favour equity financing due to the high amounts of capital needed for rapid growth potential and uncertain cash flows, whereas traditional, asset-heavy industries tend to prefer debt structures to leverage tangible assets and obtain tax benefits.

The choice between debt and equity is further influenced by structural and regulatory considerations. Debt financing offers advantages such as capital repatriation, predictable returns through interest and redemption premiums, and security creation over borrower assets. Equity financing, on the other hand, imposes no timed repayment obligation, allows investors to participate in growth upside and entails fewer regulatory restrictions.

In recent times, private debt (structured as NCDs, OCDs, CCDs) has emerged as the most active segment.

In the first half of 2025, PE/VC investments in India totalled USD26.4 billion across 593 deals. Start-ups accounted for USD6.8 billion, the highest share among all deal types, with a 41% year-on-year increase. PE/VC exits in the first quarter of 2025 amounted to USD11.6 billion, a 2% year-on-year increase. Infrastructure was the leading sector for investment in the first quarter, followed by financial services and technology.

During 2024, the Indian equity markets experienced strong activity, with over 2,600 transactions across M&A and PE, a 42% increase in deal volume compared to the previous year. PE investments alone surged by 34% in volume, with a total deal value of about USD40.2 billion, reflecting an 11.7% increase in value year-on-year. There has also been growth in deal size, with a significant increase in deals exceeding USD1 billion, increasing from 430 deals in 2023 to over 500 deals in 2024.

These trends indicate increased investor confidence and a preference for larger transactions driven by premium valuations, strategic deals and corporate portfolio expansions. The technology, healthcare, pharmaceutical, consumer-related business, internet and e-commerce, and renewable energy sectors attracted particularly significant investments.

In the coming years, India is poised to be in the “sweet spot” for investment. The International Services Centre (IFSC) set up in Gujarat International Finance Tec‑City (GIFT City), which provides significant tax advantages for those investing into Indian companies, may help attract larger foreign investments.

In India, both privately allocated equity and public-raised equity have seen significant evolution in recent years, though the private markets clearly dominate in terms of scale, impact and structural importance. According to Bain & Company’s India Private Equity Report 2025, privately allocated equity rebounded strongly in 2024, rising by nearly 9% to around USD43 billion after two years of contraction, reflecting resilience despite global volatility. A key trend is the structural shift towards buyouts, which accounted for 51% of PE deal value in 2024, up from 37% in 2022. This reflects investors’ preference for control positions in high-quality, scalable businesses.

Privately allocated equity is also becoming more structurally sophisticated. Large domestic fundraises, such as Kedaara Capital’s USD1.7 billion fund and ChrysCapital’s USD2.1 billion fund, signal greater domestic depth in private markets. Sectorally, PE activity remains concentrated in real estate and infrastructure, financial services and healthcare, all of which saw double-digit growth in 2024, with healthcare experiencing an 80% increase in deal volumes.

India has witnessed 39 IPOs in the first quarter of 2025. Public-raised equity has also experienced growth, particularly in the IPO space. India recorded 330 IPOs in 2024, the highest number globally, including 11 venture-backed start-ups such as Swiggy, FirstCry and Ola Electric. Public exits rose to 59% of total exit value, reflecting the growing importance of capital markets in providing liquidity for private investors.

It is important to note that, at the same time, valuations have created both opportunities and challenges, particularly in PE deal negotiations. Increasing retail participation (including through mutual funds) and a supportive regulatory framework have deepened India’s capital markets, making public-raised equity an increasingly significant route for late-stage liquidity and wealth creation.

Growth-stage companies in India are often approached by VC funds or angel investors, either directly or through investment bankers and start-up networks. Hence, investment/merchant bankers have been the traditional intermediaries advising companies on fundraising.

India has a regulatory framework covering portfolio managers, investment advisors and research analysts, regulated by SEBI. Portfolio managers and investment advisors provide investment advice to their clients (family offices, high net worth individuals, etc) on investment opportunities in listed and unlisted securities, as well as on Indian and offshore funds. Research analysts analyse companies and publish reports. Proxy advisory firms (regulated under the research analyst regulations) provide corporate governance reports and shareholder voting recommendations, acting as advisors to institutional investors. In GIFT City, investment advisors are regulated under the IFSCA (Capital Market Intermediaries) Regulations.

Thus, India has the necessary regulatory framework for sophisticated and institutional advisors to bring capital providers and capital seekers together.

In India, an investor realises the value of equity investments through several well-established exit routes, each shaped by distinct legal and regulatory considerations. The most common path is an IPO, which provides investors with liquidity, transparent price discovery and broad market participation once the company lists on recognised stock exchanges. However, IPO exits are subject to SEBI’s lock-in requirements and are contingent on favourable market conditions and business readiness for public scrutiny. Another route is the buyback of shares, where the company repurchases its own shares in compliance with the Companies Act, SEBI (Buyback of Securities) Regulations, 2018 (in case of listed companies) and FEMA norms. While this offers a clean exit mechanism, restrictions apply on the volume, consideration and timelines of such buybacks, and in case of foreign investors must comply with FDI policy and conditions thereunder.

For PE, VC and joint venture transactions, contractual arrangements also play a key role. Similarly, strategic sales (together with tag-along and ROFO/ROFR) enable co-ordinated exits with other shareholders. Beyond contractual routes, secondary sales to strategic or financial buyers are common as well. Also, mergers and acquisitions, corporate resolution through the IBC and reduction of capital remain prevalent routes for mature and established businesses.

There are important legal considerations in structuring exits – eg, put and call options must be carefully drafted to avoid invalidation as derivative contracts, while transfer restrictions in public companies must not violate statutory provisions on free transferability. For foreign investors, compliance with pricing guidelines and proper documentation, including valuation certifications, is essential. Despite these complexities, India’s sophisticated advisory ecosystem comprising law firms, investment bankers, consultants, tax advisors and industry bodies provides strong support to investors in navigating entry and exit strategies, protecting enforceability and maximising investment value.

In India, both PE and private debt play important but complementary roles in the financial landscape, with their relevance varying according to company size, stage, cash flow profile and risk appetite.

PE is particularly critical for start-ups and high-growth companies seeking capital for expansion, innovation or market penetration, especially in dynamic sectors such as technology, fintech and software as a service (SaaS). These companies often have uncertain cash flows and higher risk profiles, making equity financing attractive as it provides long-term growth capital without immediate repayment obligations and allows investors to participate in upside potential.

While private credit is projected to exceed USD50 billion over the next five years, supported by NBFCs and alternative investment funds (AIFs) as the primary vehicles for structured credit deployment, India’s venture debt market has expanded 13-fold in the last six years. Private debt has emerged as an increasingly significant segment, particularly for mid-sized companies that face limited access to traditional bank lending due to higher credit risk or regulatory caution. The growth of non-bank lending, regulatory reforms and tax parity for debt instruments, and the development of financial hubs like GIFT City, have strengthened private debt as a viable financing source. Debt financing provides predictable, structured capital, interest deductibility and security over assets without diluting ownership, making it suitable for companies with stable cash flows or specific growth or distress financing needs.

The choice between equity and debt is primarily driven by the company’s stage, risk profile, cash flow predictability, cost of capital and promoters’ desire to retain control. Investors’ decisions are similarly shaped by risk tolerance, expected returns, the investment horizon and portfolio diversification, with equity investors seeking higher upside and long-term growth and debt investors prioritising stable, predictable income, often secured by the borrower’s assets.

The timeline to raise equity financing in India can vary depending on factors such as the company’s growth stage and readiness, the complexity of the deal, the investors involved and regulatory requirements. Early-stage fundraising, such as seed or angel investment rounds, can take from five weeks to few months.

Growth-stage or PE fundraising generally takes longer, often six to 12 months, due to larger investment amounts, more extensive financial and legal due diligence, shareholder approvals under the Companies Act, compliance with FDI regulations for foreign investors and other regulatory approvals. Public offerings, such as IPOs or FPOs, require the longest timelines because of SEBI approval processes, prospectus preparation and book-building exercises. The duration is further influenced by valuation negotiations, the structuring of hybrid instruments and the need to ensure a balance between investor protections and founder control.

India has a regulated but largely liberalised framework for foreign investment in company equity, with certain important restrictions that are sector-specific and depend on investor origin and national security considerations. Under the FDI regime, in most sectors, 100% foreign equity investment is permitted under the automatic route. However, it is important to note that some sectors, including defence, print media, multi-brand retail and brownfield pharmaceuticals, have sectoral caps and require government approval beyond certain thresholds. Additionally, there are certain industries that have a blanket/total ban, including lottery, gambling, chit funds and real estate business (other than real estate construction and development).

Another aspect that has to be taken into account is the significant restrictions that apply to investors from countries that share a land border with India, such as China (including Hong Kong), Pakistan, Bangladesh, Nepal, Myanmar, Bhutan and Afghanistan, under Press Note 3 (2020). Any investment (direct or indirect) from land border countries, or where the beneficial owner is situated in or is a citizen of such a country, requires prior government approval regardless of the sector and percentage of ownership to be acquired. This rule was introduced to prevent takeovers of Indian companies, especially during the period of economic vulnerability caused by the COVID-19 pandemic.

While these restrictions can create additional procedural hurdles and delays for affected foreign investors, they do not amount to a blanket ban. In practice, significant investments from restricted countries are subject to a case-by-case review by the government, which may approve or reject proposals based on national interest and security. For most other foreign investors, the process is streamlined, especially in sectors that fall under the automatic route and when there is no interest from land border nations.

There are no restrictions under FEMA for repatriating dividends, interest and capital gains on exit from Indian securities, apart from entry–exit pricing restrictions applicable under FDI policy, and in the case of the all-in cost ceiling for ECBs. Repatriation must be done through normal banking channels and is subject to the payment of applicable taxes and filing of appropriate reports/forms under FEMA and tax laws.

India takes a comprehensive approach to preventing and detecting money laundering, terrorism financing and related financial crimes. KYC requirements are primarily regulated by the RBI, SEBI and Ministry of Finance through the Prevention of Money Laundering Act, 2002 and its accompanying rules. Financial institutions, non-banking financial companies and intermediaries in the securities market are subject to stringent AML obligations under these frameworks and are required to establish and maintain robust compliance programmes (eg, verifying the identity and address of investors and beneficial owners, and the source of funds, and reporting suspicious transactions to the Financial Intelligence Unit – India).

SEBI has also introduced its own AML/KYC regulations, which apply to securities market intermediaries such as brokers, merchant bankers, portfolio managers, AIFs and custodians, ensuring transparency in equity financings and capital market transactions.

In India, the choice of law and jurisdiction in equity financing transactions depends on the nature of the parties and the specifics of the deal. For purely domestic transactions, Indian law and the exclusive jurisdiction of Indian courts is the logical choice. However, in cross-border deals or deals with foreign investment, it is common for parties to agree to Indian law being the governing law, but also to resolve disputes through international arbitration, often seated in a neutral venue such as Singapore or London because of the neutrality, speed and reputation associated with international arbitration forums like the Singapore International Arbitration Centre (SIAC) and the London Court of International Arbitration (LCIA). Foreign arbitral awards are enforceable in India.

Another aspect to take note of is that for corporate and shareholder disputes, the NCLT and its appellate body, the National Company Law Appellate Tribunal, are the key fora. Commercial disputes may also be taken to the commercial divisions of High Courts. For securities market disputes, the securities appellate tribunal offers specialised recourse. While Indian courts are generally considered fair and reliable, the judicial process can be lengthy due to high caseloads and procedural delays.

Thus, while Indian law and courts are often chosen for domestic deals, international arbitration and mediation are frequently agreed for cross-border transactions, to provide comfort to foreign investors and ensure effective dispute resolution.

There are multiple pathways for investing in Indian equities, but investors should be aware of FDI policy, FPI regulations, foreign venture capital investor (FVCI; provides certain benefits over the FDI route) regulations and AIF regulations. Private credit can be provided through the FPI or AIF route. Investors may also consider investing in infrastructure investment trusts (INVITs) and real estate investment trusts (REITs).

India’s equity finance landscape outlook is quite optimistic despite recent challenges and uncertainties. The beginning of 2025 has shown promising momentum, with PE/VC investments increasing by 37% month on month in January – this is a positive sign considering the geopolitical uncertainties and aggressive changes in US trade and foreign policy.

In 2024, the Indian market faced multiple challenges and uncertainties but still achieved PE/VC investments of around USD56 billion, which is the second-highest amount on record. This performance highlights India’s strong macroeconomic fundamentals, and the stability of its political and policy environment, which are favourable factors for investment. Certain sectors, like e-commerce, technology, financial services, media and entertainment and food and agriculture, experienced significant growth. Lastly, sectors that are expected to grow and attract investments include real estate, financial services, technology, e-commerce, healthcare and pharmaceuticals. Additionally, the green energy transition and renewable sector are expected to attract significant investments and growth, as India moves towards achieving its sustainable development goals.

The Indian start-up economy also warrants attention, with projections suggesting that it could potentially reach a valuation of USD1 trillion by 2030. This in turn makes start-up equity investment an attractive opportunity for equity finance investors looking to diversify their portfolios.

Under the provisions of the Income-tax Act, 1961 (the “Income tax Act”), foreign investors are taxed on their Indian-source income, as per the tax rates under the Income-tax Act or the double tax avoidance agreement (DTAA), whichever is more favourable. Dividends are subject to 20% tax, and interest income is subject to tax at a base rate of 20% for debt in foreign currency and a base rate of 40% for debt in Indian currency. These base rates are exclusive of surcharge and education cess. However, under relevant DTAAs, the tax rate for dividends and interest could be reduced to 10%.

With respect to taxation of gains on the sale of Indian securities, the Income Tax Act distinguishes between short- and long-term gains, based on the holding period of the asset. For listed equity shares, short-term capital gains (held for a period of 12 months or less) are taxed at a base rate of 20%, while long-term capital gains (held for a period of more than 12 months) are taxed at a base rate of 12.5%. These base rates are exclusive of surcharge and education cess. For other types of assets, short-term gains are taxed at the investor’s applicable slab rate, while long-term gains (for assets held for more than 12 months) are taxed at 12.5%. A handful of DTAAs provide exemption from capital gain tax, subject to fulfilment of conditions thereunder.

To claim DTAA benefits, the foreign investor must obtain a tax residency certificate (TRC), as issued by the relevant authorities of its home jurisdiction. Further, non-resident investors are required to provide any other information or documents prescribed. In this regard, the Central Board of Direct Taxes, vide its notification dated 1 August 2013, prescribes that certain information in Form No 10F be produced along with the TRC, if the same does not form part of the TRC. The tax authorities may grant DTAA benefit (after verifying the TRC) based on the facts of each case.

Taxes have to be withheld at the time of payment or credit, whichever is earlier.

Investors making investments in Indian entities need to consider a range of tax and regulatory aspects, including income tax (tax on income and tax on gains upon exit), stamp duty, indirect taxes and the availability of potential reliefs and grants.

Foreign investors are taxed on their Indian-source income as per the tax rates under the Income-tax Act or the DTAA, whichever is more favourable.

Stamp duty and transaction charges also impact equity financing. Stamp duty is payable on transaction documents, share certificates and debenture certificates, with rates varying across Indian states. Secondary transfers of shares similarly attracts stamp duty. Such duties add to the overall cost of acquisition. Other tax considerations include corporate tax on the Indian investee company, the application of minimum alternate tax, general anti-avoidance rules, transfer pricing provisions for cross-border transactions and indirect transfer tax implications (whereby a non-resident to non-resident transfer at the offshore holding company level may still be subject to tax in India if certain thresholds are attracted).

India also provides a number of tax reliefs and incentives to promote investment, like concessional withholding tax rates under DTAAs, a tax holiday for start-ups, a tax holiday on the business income of entities set up in GIFT City, tax exemption to sovereign wealth funds, tax immunities to certain multilateral development banks (MDBs), etc, to promote India as an attractive jurisdiction for both equity and debt investments, while also ensuring investor protections under bilateral investment agreements and at the same time supporting the government’s goal of fostering growth and entrepreneurship.

Pursuant to the provisions of the Income tax Act, and with the intent to promote mutual economic relations and trade, India has entered into 94 double taxation avoidance agreements (DTAAs). DTAAs provide various benefits like tax exemptions, tax credits, clarity on taxation of international income, concessional tax rates, etc, thereby encouraging cross-border economic interactions and investments.

The impact of insolvency processes on the rights of equity investors depends on the framework under which the insolvency process is being undertaken. In India, the primary insolvency framework is the Corporate Insolvency Resolution Process (CIRP) under the IBC.

Once CIRP is initiated, the equity investors (ie, promoters) lose their control on the management of the company, which is taken over by a resolution professional (RP), and the affairs of the company are conducted under the supervision of the CoC, which is composed exclusively of financial creditors. Equity investors (promoters and public shareholders, if the debtor is a public listed company) have no representation or voting rights in the CoC, and therefore no role in deciding the outcome of the proceedings. Also, as per the provisions of the IBC, the claims of equity shareholders are paid last in the priority order. This means that during liquidation, all creditors are paid first, and equity shareholders only receive a distribution if any residual assets remain after satisfying creditor claims. Typically, this results in no recovery for equity shareholders.

Under the IBC, equity shareholders rank lowest in the priority order of distribution of assets upon liquidation. This means that they are entitled to receive any proceeds only after all other claims, including insolvency resolution costs, workmen’s dues, secured and unsecured financial creditors, employee wages, government dues and other dues are fully satisfied. In practice, because the value of assets is typically insufficient to meet even higher-ranking claims, equity investors (typically promoters and public shareholders, in the case of listed companies) rarely recover any value from insolvency proceedings conducted under the IBC.

Previously, the liquidator under the (Voluntary Liquidation Process) Regulations, 2017 could realise the uncalled or unpaid capital contribution from shareholders or partners. This allowed the liquidator to demand any unpaid amount on shares or partnership contributions during liquidation, by giving notice to the contributories. However, this provision was omitted recently to streamline the liquidation process and prevent delays, as the realisation of uncalled capital often led to legal disputes. With this change, liquidators no longer have the power to realise uncalled capital commitments during liquidation.

Under the IBC, CIRP is required to be completed within a period of 180 days, with a possible extension of 90 days. Pursuant to the 2019 amendment, CIRP is required to be mandatorily completed within 330 days, including any extension granted and time spent in legal proceedings in relation to the resolution process of the corporate debtor, with the objective of ensuring resolution within a year to prevent loss of value.

As mentioned in 5.1 Impact of Insolvency Processes on Shareholder Rights, equity shareholders (ie, promoters and, for listed companies, public shareholders) are given the lowest priority, thereby exposing them to total loss of their investment upon the conclusion of insolvency proceedings.

In India, there are different frameworks that contain provisions to rescue a company facing financial distress, as follows.

IBC

CIRP, pursuant to the provisions of the IBC, has been introduced to achieve resolution for companies that have defaulted on payments above the prescribed threshold, in a time-bound manner. Once admitted, control of the company shifts from the management to the RP, who runs the company under the supervision of the CoC. Although successful resolution via a transparent resolution process under the IBC may preserve some value, it leads to several risks like loss of investment, dilution of ownership, loss of management control, etc.

The pre-packaged insolvency resolution process (PPIRP) is a statutory insolvency resolution framework introduced specifically for micro, small, and medium enterprises (MSMEs) under the IBC. Although restricted to MSMEs, PPIRP allows quicker resolution and permits the existing promoters and management to retain operational control during resolution.

Companies Act, 2013

Sections 230–232 of the Companies Act, 2013 provide a statutory framework for the restructuring of companies through compromise or arrangements with creditors and shareholders. This mechanism ensures enforceability through the NCLT, but at the same time leads to delay due to the long and complex legal process.

Apart from the foregoing, there are other frameworks for targeted sectors, like the RBI’s Prudential Framework for Resolution of Stressed Assets, for time-bound resolution of stressed assets of systemically important non-deposit-taking non-banking financial companies, scheduled commercial banks and small finance banks.

When a company enters insolvency, equity investors (ie, promoters and public shareholders, in the case of listed companies), face several risks like loss of investment, dilution of ownership, loss of management control, legal consequences for exercising excessive control or influence over the affairs of an insolvent company, etc.

Shareholders not involved in the management bear the loss of investment and are generally shielded from further liability. However, shareholders who are directors or promoters can be brought before the adjudication authority on an application made by the RP or liquidator under the IBC, if found responsible for fraudulent trading, unfairly preferring certain creditors or committing wrongful acts before insolvency.

The authors wish to thank Kartik Mehta (Hidayatullah National Law University, Raipur, India) for his support with this article.