Practice Area

Private Equity & Venture Capital

Overview

Private equity and venture capital investments involve a layered negotiation between investors and founders over governance rights, economics, and exit — typically compressed into tight timelines with significant information asymmetry. The term sheet sets the commercial framework, but the binding documents — the shareholders’ agreement, the subscription agreement, the amended articles — determine the actual rights of each party. Corpus Lawyers advises investors, founders, and portfolio companies on private equity and venture capital transactions across stages, from seed and Series A through growth equity and PE buyouts.

Term Sheet Advisory and Negotiation

Advisory to investors and founders on term sheet provisions — valuation, instrument type (equity, CCPS, CCDs), anti-dilution mechanism (broad-based weighted average versus ratchet), liquidation preference waterfall, governance rights, information rights, and founder vesting — with a clear explanation of the practical consequences of each term.

Investment Documentation

Drafting and negotiation of subscription agreements, shareholders’ agreements, share purchase agreements, and amended and restated articles of association for PE and VC investments — covering investor protective provisions, board representation rights, reserved matters, and exit mechanisms.

FEMA Compliance for Foreign Investment

Advisory on FEMA compliance for foreign PE and VC investments into Indian companies, including pricing compliance with FEMA pricing guidelines, instrument structuring, FC-GPR filing, and ongoing compliance obligations of the Indian company post-investment.

Founder Vesting and ESOPs

Advisory on founder vesting arrangements and employee stock option plan design and documentation — covering ESOP trust structures, grant documentation, exercise mechanics, and tax implications for employees and the company.

Secondary Transactions

Advisory on secondary transfers of PE and VC investments, including right of first refusal and right of first offer exercise and waiver, tag-along rights, drag-along mechanics, transfer pricing compliance, and structuring of secondary transactions to achieve desired economic outcomes.

Exit Advisory

Advisory on PE and VC exits through strategic sale, secondary sale, IPO, or buyback — including advisory on exit mechanics under the shareholders’ agreement, drag-along enforcement, and negotiation of exit documentation.

Landmark Authorities and Doctrinal Framework

Private equity and venture capital transactions operate within a layered framework: the Companies Act, 2013 (governance and capital), the SEBI (Alternative Investment Funds) Regulations, 2012 (fund formation and registration), the Foreign Exchange Management Act, 1999 with the Non-Debt Instruments Rules, 2019 (cross-border capital flows), and the Indian Contract Act, 1872 read with the Specific Relief Act, 1963 (commercial rights and remedies). The Insolvency and Bankruptcy Code, 2016 forms a downstream consideration at the distressed-portfolio stage.

The Specific Relief (Amendment) Act, 2018 recalibrated the remedy framework. Specific performance is now the rule under substituted Section 10, not the discretionary remedy it was before October 2018. For PE/VC transactions, this reshapes the enforceability of tag-along, drag-along, liquidation-preference, anti-dilution, and put-option mechanics. Investors negotiating post-2018 shareholder agreements can structure exit and protection clauses with specific-performance enforceability as the primary remedy.

The SEBI AIF Regulations, 2012, as amended, define the three-category fund architecture — Category I (venture capital, social venture, infrastructure funds), Category II (general private equity), Category III (hedge funds with leverage). Each category has its own investor-eligibility, investment-restriction, and reporting framework. Fund formation advisory begins with the category selection, not the legal-entity selection.

The FEM (Non-Debt Instruments) Rules, 2019 govern the cross-border capital leg. Entry pricing (issuance price not lower than fair value or floor price), exit pricing (sale to residents at not more than fair value; sale to non-residents at not less than fair value), and the sectoral-cap framework constrain deal economics. Press Note 3 of 2020 overlays a prior-government-approval requirement for investment from entities incorporated in or beneficially owned from land-border countries, applicable irrespective of sector.

Current Doctrinal Shifts and Live Questions

Assured-return and fixed-price exit structures. Cross-border exit mechanisms that promise a fixed return or a fixed price to a non-resident investor run into FEMA pricing constraints. The position through successive RBI master directions is that a fixed-return exit is impermissible; a fair-value exit is permissible. Put options with a price cap, liquidation preferences with a minimum floor, and earn-out structures require FEMA-side calibration to avoid a contravention at the exit stage.

SEBI AIF placement memorandum scrutiny. SEBI’s supervisory stance on placement memoranda has tightened since 2022. Disclosures on conflict of interest, fees and charges, track record, related-party arrangements, and co-investment structures are scrutinised at registration and at subsequent reporting. Investor documentation standards have risen materially.

Minority protection enforceability — Vidya Drolia bucket analysis. A PE/VC investor’s minority protections under a shareholders’ agreement run parallel to the statutory minority remedy under Sections 241-242 of the Companies Act. The arbitrability of SHA disputes falls within the Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 four-fold test. Claim formulation must decide in advance whether to drive the dispute into arbitration under the SHA or into the NCLT under the oppression-and-mismanagement remedy; the routes do not coexist for the same underlying grievance.

Angel-tax exemption and DPIIT recognition. Section 56(2)(viib) of the Income Tax Act, as amended to include non-resident investors from April 2024, extends the excess-share-premium tax exposure to foreign investor rounds. DPIIT recognition under the Startup India framework remains the principal relief pathway for eligible startups. Tax structuring at the investment round must now address both resident and non-resident investor cases.

Investor Protection Architecture Post-2018

A well-calibrated PE/VC investor-protection clause set integrates five load-bearing elements. First, economic protections — liquidation preference (1x non-participating as a baseline; participating or multiples where bargaining power allows), anti-dilution (broad-based weighted average being the market standard), and pre-emptive rights. Second, governance protections — board seats, affirmative-vote lists, reserved matters, and observer rights for later investors. Third, exit rights — tag-along, drag-along (with carve-outs for minimum-return thresholds), redemption, and put options (structured to survive FEMA where cross-border). Fourth, information rights — monthly, quarterly, and annual financial information, business-plan updates, and inspection rights. Fifth, enforcement architecture — specific performance primary remedy post-2018, arbitration clause, seat and venue, and emergency arbitrator access.

Standard-template SHAs from pre-2018 practice continue to circulate in the market. These typically weaken investor remedies against the current framework. A current-template SHA is materially different in its drafting detail and its remedy architecture; the difference becomes visible only at the dispute or exit stage.