When you are raising funds but can’t agree on a fixed valuation today, CCDs (Compulsorily Convertible Debentures) are a great option. They are technically a loan that must convert into equity later, usually during your next big funding round.
Since they are a hybrid of debt and equity, they offer a lot of flexibility for both founders and investors.
Service: Compulsorily Convertible Debentures (CCD)
Which one is better: CCD or CCPS?
While both eventually turn into equity, they are treated differently by the law and for tax purposes.
| Feature | CCPS | CCD |
| What is it? | A type of Share (Preference Share). | A type of Debt (Unsecured Loan). |
| Valuation | Price is usually fixed at the time of issue. | Can be issued at a discount to the future valuation. |
| Interest | You pay a “dividend” (only if you make a profit). | You can pay interest (even if you aren’t profitable yet). |
| FDI Rules | Treated as Equity from day one for foreign investment. | Treated as Equity for FDI, but as debt for some tax rules. |
| Conversion | Usually a 1:1 ratio based on today’s price. | Often converts based on a future valuation at a lower price (discount). |
The “Discount” Advantage
One of the biggest reasons to use CCDs is the valuation discount.
Instead of fixing a price today, you agree that when the investor’s money converts to shares in the future (like your Series A), they will get those shares at a lower price (e.g., 20% discount) compared to the new investors.
This rewards early investors for taking a risk before your valuation was officially established.
What is required to start?
Registered Valuer Report: Even though conversion happens later, a CA must provide a valuation report upfront to set the “cap” or floor price.
Separate Bank Account: Just like shares, the money must come into a dedicated account.
Debt-to-Equity Limits: We check your company’s borrowing limits to ensure you are allowed to take on the CCD.
The 5 Steps We Handle For You
We manage the transition from “Debt” to “Equity” documentation so you don’t have to hire separate teams.
Structuring (CA/Legal): We help you decide the interest rate and the conversion formula (including the discount and valuation cap).
Agreements (Legal): Our lawyers draft the Debenture Subscription Agreement to ensure the conversion terms are airtight.
Approvals (CS): We pass the board and shareholder resolutions to authorize the issuance of “Unsecured Debentures.”
Issue & Filing (CS): We issue the Offer Letter and file the necessary forms (PAS-3) with the ROC once the money is received.
Conversion Management: When it’s time to convert the CCD into Equity, we handle the valuation update and the final allotment of shares.
How long does it take?
Preparation & Drafting: 10 days.
Approvals & Offer: 10–12 days.
Allotment & Filings: 5 days.
Total Time: Approximately 3 to 4 weeks.