/ Fundraising · Indian instruments

CCD and CCPS, India's SAFE equivalents.

For Indian companies raising from foreign or domestic investors without flipping to Delaware, the two primary instruments are Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPSs). Both are treated as equity under FEMA for FDI purposes, allowing clean inbound investment. The choice between them depends on timing of conversion and specific terms needed.

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Written by CA Durgesh Chavda

Chartered Accountant (ICAI) · Founder, Bharat Quantum Prospera · US incorporation, India-US DTAA, FEMA ODI, NRI taxation, cross-border structuring · LinkedIn

/ CCD basics

Compulsorily Convertible Debentures.

Compulsorily Convertible Debenture (CCD) is a debt instrument that must convert to equity at a specified time or event. It is treated as equity under FEMA from the moment of issue, not as debt.

Nature: debenture (debt-like) that compulsorily converts to equity. Not optional.
Conversion trigger: specified event (next priced round, maturity date) or automatic at a predetermined date.
Interest / coupon: can carry interest during the pre-conversion period.
FEMA treatment: treated as equity under FDI framework. Automatic Route for most sectors.
Companies Act: issued under Section 71 as debentures; conversion terms specified in the trust deed.

CCDs were historically the standard instrument for pre-2017 FDI into Indian startups. CCPS has largely overtaken for new deals.

/ CCPS basics

Compulsorily Convertible Preference Shares.

Compulsorily Convertible Preference Shares (CCPS) are preference shares that must convert to equity at a specified time or event. Combine preference-stock economics (liquidation preference, cumulative dividend) with mandatory convertibility.

Nature: preference shares (equity-like) that compulsorily convert to equity. Not optional.
Conversion trigger: next priced round + 1x conversion, or specified event, or maturity (typically 20 years max under Indian Companies Act).
Liquidation preference: can specify 1x non-participating, 1x participating, or 2x variants.
Dividend: can specify cumulative or non-cumulative; practically rare for startup CCPS to pay dividend.
FEMA treatment: treated as equity under FDI framework.
Companies Act: issued under Section 55 as preference shares.

CCPS is now the preferred Indian-side instrument for most seed and Series A rounds — combines preference-stock economics with FEMA-compliance.

/ Pricing and valuation

FEMA pricing guidelines apply.

Both CCDs and CCPSs issued to foreign investors must comply with FEMA pricing guidelines:

Primary issuance to foreign investor: issue price must be at or above fair value determined by SEBI-registered Merchant Banker (DCF, NAV, or comparable-company method).
Secondary transfer: transfer price must be between fair value floor and fair value ceiling.
Fair-value certificate: required from SEBI-registered Merchant Banker before each FDI issuance.
No below-fair-value issuance: except in specified exceptions (ESOPs, bonus issue, rights issue).

Conversion price: typically specified in the shareholder agreement as 'conversion at the next priced round' at either the pre-money valuation of that round (pre-money CCPS, less dilutive to new investors) or at the subscription-plus-discount price (less common).

/ Mechanics and timeline

Issuance to conversion.

Round structure finalised — CCD or CCPS, conversion terms, liquidation preference, pre-money.
Shareholder resolution amending Articles if needed; special resolution for preference share issuance.
Valuation certificate obtained from Merchant Banker.
Pricing guideline compliance confirmed.
Investor remits capital to Indian company bank account.
Shares / debentures issued to the investor.
Form FC-GPR filed with RBI within 30 days of share issue.
Trust deed executed for CCDs (securing the debenture).
Conversion at the specified trigger — CCDs convert to equity; CCPS convert to equity. Fresh set of equity shares issued; FC-GPR filing on conversion is NOT required (conversion is intra-FDI).

Common timing: CCD / CCPS issued at seed round; converts to equity at Series A priced round.

/ Ready when you are

CCPS is the Indian SAFE — use it correctly.

For Indian company seed and Series A rounds from foreign investors without a Delaware flip, CCPS is the standard. We handle valuation certificate, FEMA FC-GPR, Articles amendments, shareholder resolutions, and conversion mechanics at the next round. Per-round engagement priced per scope.

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FAQ

Common questions, answered.

What is the difference between CCD and CCPS?

CCD (Compulsorily Convertible Debenture) is a debt instrument that must convert to equity. CCPS (Compulsorily Convertible Preference Shares) is a preference-share instrument that must convert to equity. CCDs are issued under Section 71 (Companies Act debenture rules); CCPSs under Section 55 (preference share rules). Both treated as equity under FEMA for FDI purposes. CCPS is the preferred structure today because it carries preference economics (liquidation preference, cumulative dividend if desired) built-in.

Is SAFE legal in India for Indian company funding?

Direct SAFE issuance by an Indian company is not clearly covered under FEMA/Companies Act and faces regulatory uncertainty. The Indian equivalents are CCDs (debenture route) or CCPS (preference share route). Both deliver similar economics to SAFE (convertibility, no immediate equity dilution) within a FEMA-compliant framework. For Delaware C-Corp subsidiaries of Indian founders, SAFEs are freely usable.

Can domestic Indian investors subscribe to CCPS?

Yes. Domestic Indian individuals, companies, and SEBI-registered AIFs can subscribe to CCPS of Indian companies. For AIF subscription, specific allocation and reporting rules apply. For individual investors, standard subscription under Companies Act.

Do CCPS carry dividend?

They CAN carry dividend if specified, but startup CCPS typically do not. Standard startup CCPS: 1x non-participating liquidation preference + conversion to equity at next priced round + no dividend. If dividend is specified (cumulative or non-cumulative), the tax treatment follows dividend rules (shareholder-level taxable, 10% TDS under Section 194).

When do CCPS convert to equity?

At the specified trigger — typically the next priced round. Standard mechanic: CCPS 'converts at the pre-money valuation of the next priced round at 1x' (meaning the CCPS holder gets equity shares equivalent to their investment amount at the pre-money valuation of the next round). This is similar to how a SAFE converts in a US round.

Does BQP structure CCD / CCPS rounds for Indian startups?

Yes. Full stack: round structuring (CCD vs CCPS vs equity), Merchant Banker valuation certificate (via SEBI-registered partner), FEMA pricing guideline compliance, shareholder resolutions, Articles amendments if needed, FC-GPR filing within 30 days, ongoing cap-table maintenance, conversion event execution at next round. Request via get-a-quote.html.