Strategic Management and Corporate Finance · Foreign Funding - Instruments, Laws and Procedures

Prospectus and Compliance for Overseas Issues

Updated 11 October 2026 · Fact-checked

Overseas fund raising means an Indian company offers shares or other securities to non-residents or in foreign markets. You must first satisfy the Companies Act, 2013 (section 62 for shares, special resolution, valuation), then FEMA pricing and reporting rules, and the offer document and filing rules of the foreign market. Finish with post-issue filings.

Understand Prospectus and Compliance for Overseas Issues

When an Indian company raises money abroad, it is bound by two sets of rules at once. The Companies Act, 2013 governs how the company issues securities. FEMA and RBI rules govern who may invest, at what price and what must be reported. The foreign market adds its own prospectus or offering document rules.

Under the Companies Act, a further issue of shares must go through section 62. Shares can be offered to existing equity holders as a rights offer, to employees under an ESOP scheme, or to any persons if a special resolution authorises it. For the third route, the price must be fixed by a valuation report of a registered valuer, subject to compliance with the applicable provisions of Chapter III and any other conditions that are prescribed. This applies whether the issue is for cash or for a consideration other than cash. Overseas investors are usually reached through this third route, so a special resolution and a valuation report are the starting point.

If you issue at a premium, section 52 requires that the premium be transferred to the securities premium account. That account can then be used only for the purposes the section lists, such as bonus shares, writing off preliminary or issue expenses, premium on redemption, or buy-back under section 68.

If you issue preference shares, section 55 applies. Irredeemable preference shares cannot be issued. Redeemable preference shares need authority in the articles and must be redeemed within 20 years. A longer period is allowed for infrastructure projects, subject to redemption of a prescribed percentage of the shares each year at the option of the preference shareholders. The shares must be fully paid before redemption and can be redeemed only out of profits that would otherwise be available for dividend or out of the proceeds of a fresh issue made for the purpose. If redeemed out of profits, you must create a Capital Redemption Reserve.

Any premium payable on redemption must be provided for before the shares are redeemed. For a prescribed class of company whose financial statements comply with the accounting standards under section 133, the premium must be provided out of profits. In other cases, it may be provided out of profits or the securities premium account.

The Act also deals with the other direction: foreign companies doing business in India. Under section 380, a foreign company must deliver documents to the Registrar within thirty days of setting up a place of business in India. Section 391 applies sections 34 to 36 to a prospectus issued by a company incorporated outside India under section 389, as they apply to a prospectus issued by an Indian company. It also applies them to Indian Depository Receipts issued by a foreign company. After the issue, you must make the RBI and FEMA reports, which are covered in the FEMA and FDI topics, and keep your statutory records current.

Key rules to remember

Further issue to any persons (section 62(1)(c)): Special resolution + price fixed by registered valuer's report, subject to Chapter III and prescribed conditions (cash or non-cash consideration); This is the usual route for allotting shares to a non-resident investor. A board resolution alone is not enough.
Rights offer notice period (section 62(1)(a)(i)): Offer open for at least 15 days (or such lesser number as prescribed) and not more than 30 days; If the offer is not accepted within the time, it is deemed declined. The notice must also state the right to renounce unless the articles provide otherwise.
Dispatch of rights notice (section 62(2)): Send the notice to all existing shareholders at least 3 days before the issue opens, by a mode with proof of delivery; The modes are registered post, speed post, electronic mode, courier or any other mode having proof of delivery.
Securities premium (section 52(1)): Securities premium account = total premium received on shares issued; Applies whether the issue is for cash or otherwise. Use is limited to the purposes in section 52(2).
Redemption of preference shares (section 55): Articles must authorise; redeem only if fully paid, within 20 years, out of profits available for dividend or fresh issue proceeds; CRR = nominal value redeemed out of profits; Irredeemable preference shares cannot be issued. Infrastructure projects may exceed 20 years, subject to annual redemption of a prescribed percentage at the holders' option. Premium on redemption must be provided for before redemption: out of profits for prescribed companies complying with section 133 standards, otherwise out of profits or the securities premium account.
Foreign company filing (section 380): Documents to Registrar within 30 days of setting up place of business in India; alterations within 30 days; Includes charter or memorandum and articles, address of principal office, list of directors and secretary, and an authorised person in India for service of process.

How to solve Prospectus and Compliance for Overseas Issues questions

Use the same sequence for any case question on overseas issues. It keeps your answer in the provision, analysis, conclusion format.

1Identify the direction and instrument: is an Indian company issuing shares, preference shares or debt abroad, or is a foreign company coming to India?
2State the Companies Act route: section 62 for further issue of shares, and note that rights, ESOP or special resolution are the options.
3Check the approvals: board approval, special resolution, valuation by a registered valuer and any authority needed in the articles.
4Apply the accounting rules: premium to the securities premium account under section 52, and for preference shares apply section 55 conditions.
5Add the FEMA and RBI layer in plain words: eligibility of the investor, pricing, sector route and reporting after the issue. State these without a section number.
6Add the offer document and foreign market requirements, and for foreign companies the section 380 and 391 filings.
7List the post-issue compliances: allotment, records, reports to the RBI, filings with the Registrar.
8Conclude clearly: say whether the issue is valid and what the company must do next.

Quickest way: Four-gate check for an overseas issue

When to use it: Use this when you have only a few minutes for a short-note or when a case question asks whether an issue is compliant.

Gate 1, authority: special resolution passed?
Gate 2, price: registered valuer's report on file?
Gate 3, money: premium credited to the securities premium account, and preference share terms within section 55?
Gate 4, reporting: FEMA and RBI reporting plus Registrar filings done after allotment?
Name the failed gate in your conclusion and the fix.

Common mistakes in Prospectus and Compliance for Overseas Issues

Saying a board resolution is enough to allot shares to a foreign investor.
Students remember the board's power to dispose of unsubscribed shares and carry it over.
Fix: For an offer to any persons under section 62(1)(c), write that a special resolution and a registered valuer's price are required.
Applying the rights issue timeline to a private allotment to non-residents.
The 15 to 30 day window is easy to remember, so it gets used everywhere.
Fix: Use the 15 to 30 day window only for offers to existing equity holders under section 62(1)(a).
Treating securities premium as free profit that can be distributed.
Premium looks like surplus money.
Fix: State that section 52 treats the account like paid-up capital with permitted uses only, such as bonus shares, issue expenses and buy-back.
Writing that irredeemable preference shares may be issued abroad.
Foreign markets offer perpetual instruments, which confuses the Indian rule.
Fix: Quote section 55(1): no company limited by shares may issue irredeemable preference shares, and redeemable ones must be redeemed within 20 years (infrastructure projects excepted).
Ignoring post-issue reporting.
Students stop the answer at allotment.
Fix: Always add a closing paragraph on FEMA and RBI reporting and Registrar filings.
Mixing sections 380 and 391 with Indian companies raising funds abroad.
Both deal with foreign matters, so they look interchangeable.
Fix: Section 380 covers the filings of a foreign company with a place of business in India. Section 391(1)(i) applies sections 34 to 36 to a prospectus issued by a company incorporated outside India under section 389, and section 391(1)(ii) applies them to Indian Depository Receipts issued by a foreign company. Use section 62 for an Indian company's own further issue.

Worked examples

Example 1

Bharat Tech Ltd, an Indian unlisted company, wants to allot equity shares to a Singapore investor at a premium. The board has approved the issue and fixed the price using an internal calculation. Advise on Companies Act compliance.

Show the solution

Provision: section 62(1)(c) permits an offer to any persons only if authorised by a special resolution and if the price is determined by a registered valuer's report, subject to Chapter III and any prescribed conditions.
Analysis: only a board approval exists and the price comes from an internal calculation. Neither condition is met.
Premium: once issued at a premium, the premium must be credited to the securities premium account under section 52(1).
Other layers: the company must also meet FEMA and RBI requirements on investor eligibility, pricing and reporting after the issue.
Conclusion: the proposed issue is not compliant as it stands.

Answer: The company must pass a special resolution and obtain a registered valuer's report on the share price before allotment. It must then credit the premium to the securities premium account and complete the FEMA and RBI reporting after the issue.

Example 2

Sagar Infra Ltd issued redeemable preference shares to an overseas investor. After 3 years it proposes to redeem ₹10,00,000 of nominal value out of profits. Explain the conditions and the reserve to be created.

Show the solution

Provision: section 55 allows redemption only if the articles authorise the issue of redeemable shares, the shares are fully paid, and redemption is out of profits available for dividend or the proceeds of a fresh issue.
Reserve: if redeemed out of profits, a sum equal to the nominal amount, here ₹10,00,000, must be transferred to the Capital Redemption Reserve.
Treatment of the reserve: the reduction of capital provisions apply to it as if it were paid-up capital, except as section 55 allows. It may be used to pay up bonus shares.
Premium: any premium payable on redemption must be provided for before the shares are redeemed. If Sagar Infra is a prescribed class of company whose financial statements comply with the accounting standards under section 133, the premium must be provided out of profits. Otherwise it may be provided out of profits or the securities premium account.
Term check: the shares must be redeemed within 20 years from issue, unless issued for infrastructure projects under the proviso, which is subject to annual redemption of a prescribed percentage at the holders' option.

Answer: Sagar Infra can redeem only if the shares are fully paid and the articles authorise redeemable shares. It must transfer ₹10,00,000 to the Capital Redemption Reserve out of profits. It must also provide for any premium payable, from profits or, where the section permits, from the securities premium account, before redemption.

Exam tips

Write the section number with the rule in the first line of your answer. It earns marks for provision before analysis.
In case questions, spot the missing step: special resolution, valuation report or reporting. That is usually the examiner's trap.
Keep FEMA and RBI points in plain words without invented section numbers or form names. Marks come for the right idea.
End every answer with a clear conclusion and next compliance step, as the paper rewards drafting and practical compliance points.

Practice questions from Foreign Funding - Instruments, Laws and Procedures

Prospectus and Compliance for Overseas Issues in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ExecutiveCompliance, Reporting and Penalties for Overseas Investment

Prospectus and Compliance for Overseas Issues: frequently asked questions

How can an Indian company issue shares to a non-resident under the Companies Act, 2013?

It can use the route in section 62(1)(c). It needs a special resolution and the price must be set by a registered valuer's report. It must also follow FEMA rules on eligibility, pricing and reporting.

Does section 62 require a rights offer before issuing shares abroad?

No. Section 62 gives three options: a rights offer to existing equity holders, an ESOP issue, or an issue to any persons authorised by special resolution. A rights offer is not compulsory if the special resolution route is used.

What must a foreign company file in India under section 380?

Within thirty days of establishing a place of business in India it must deliver to the Registrar its charter or memorandum and articles, the address of its principal office, a list of directors and secretary, and details of a person in India authorised to accept service. It must also file any alteration within thirty days.

Where does the securities premium go when shares are issued to foreign investors?

It goes to the securities premium account under section 52. You can use it only for purposes the section allows, such as bonus shares, writing off issue expenses and buy-back.