Understanding Compulsorily Convertible Debentures (CCD): A Smart Funding Tool for Startups

2025-05-21

Raising funds is one of the biggest challenges faced by startups and growing businesses. While equity and loans are commonly used, there’s a hybrid option that offers both flexibility and legal structure — Compulsorily Convertible Debentures (CCDs).

In this blog, we’ll simplify what CCDs are, why they matter, and how they can help your business raise capital effectively.

What is a CCD?

A Compulsorily Convertible Debenture (CCD) is a type of debt instrument that must convert into equity shares of the issuing company after a certain period or upon the occurrence of specific events.

Unlike regular loans, CCDs are not repayable in cash. Instead, they convert into ownership, helping companies raise funds without giving away equity immediately.

Key Features of CCDs

Feature	Description
Type of Instrument	Hybrid (debt now, equity later)
Conversion	Mandatory conversion into equity shares
Interest	May or may not carry interest
Tenure	Fixed period before conversion
Security	Usually unsecured (unless specified)
Compliance	Governed by the Companies Act, 2013 and FEMA (if foreign investment involved)

Why Choose CCDs?

No Immediate Dilution
You receive capital today, but the equity dilution happens only later — giving you time to increase valuation.

Investor-Friendly
Investors like CCDs because they get the upside of equity with the structure of debt.

MCA and FEMA Compliant
CCDs are legally recognized and well-regulated in India. Proper filings like MGT-14, PAS-3, and stamp duty make it a clean investment tool.

Ideal for Convertible Rounds
If you're raising funds from angel investors or venture capitalists, CCDs allow flexibility before final valuation is locked in.

What Documents Are Required for CCD Issuance?

To issue CCDs, your company will need the following:

Board Resolution for approval
Shareholders’ Resolution (Special Resolution at EGM)
Form MGT-14 (filed with MCA)
Form PAS-3 (Return of Allotment)
PAS-4 (Private Placement Offer Letter)
CCD Certificates to be issued to investors
Stamp Duty Payment Challan
Bank credit proof of the CCD subscription amount

Process Flow for CCD Issuance

Pass Board & Shareholder Resolutions
Draft and issue PAS-4 to investors
Receive subscription amount in the company’s bank account
File MGT-14 and PAS-3 with the MCA
Pay applicable stamp duty
Issue CCD certificates to investors
Maintain proper registers and filings

What Happens at the Time of Conversion?

At the end of the tenure (or earlier, if triggered), the CCDs are compulsorily converted into equity shares. The company must allot shares at a pre-agreed price or valuation formula. The conversion is recorded, and shareholders get equity certificates.

Conclusion

CCDs are a smart, compliant, and founder-friendly instrument for raising funds without immediate equity dilution. If you are a startup looking to bring in investors without giving up too much too soon, CCDs might be the perfect fit.