Capital Structuring Services for Growing Companies in India

Capital structure is one of the few decisions a business makes that is genuinely difficult to reverse. The funding mix chosen in year three determines what a company can do in year eight — whether it can absorb a downturn, whether the founders still control the board, whether a private equity round is priced from strength or from need, and whether an IPO is a twelve-month project or a three-year clean-up. Most Indian promoters we meet did not choose a capital structure. They accumulated one, one funding decision at a time.

N D Savla & Associates advises companies across India on designing and repairing that structure. We work on the debt-equity mix, the choice of instruments, the pre-IPO cap table, promoter shareholding, the tax consequences of each route and the regulatory constraints that quietly limit the options available. Our teams operate from Andheri East, Charni Road, Vashi, Thane, New Panvel and Goa. Where the objective is a public issue, capital structuring feeds directly into our SME IPO advisory and post-listing compliance work, so the structure we design is one that survives the ICDR Regulations rather than one that merely looks efficient on a spreadsheet.

What Is Capital Structuring?

Capital structuring is the deliberate design of how a company funds itself — the proportion of equity to debt, the specific instruments used within each category, and the resulting distribution of ownership, control and cash flow rights among founders, investors and lenders.

The decision has four dimensions resolved together: Cost — WACC falls as cheaper debt is added, up to the point distress risk pushes the cost of equity up faster. Control — equity carries permanent voting rights and no repayment obligation. Tax — interest is deductible under Section 36(1)(iii) while dividends are not. Flexibility — debt covenants restrict management options. In India a fifth dimension applies: regulatory permissibility — FEMA pricing, sectoral FDI caps, ICDR Regulations, RBI norms for NBFCs and Section 94B thin capitalisation limits narrow the field before commercial optimisation even begins.

Who Needs Capital Structuring Advisory?

How Has Capital Structuring Evolved in India?

Before 1991, capital structure was substantially a matter of state permission — the Capital Issues (Control) Act, 1947 required approval of both quantum and pricing, debt came predominantly from development financial institutions, and foreign equity was capped at 40% under FERA. Liberalisation freed issue pricing (1992), replaced FERA with the more permissive FEMA (1999), and pushed companies toward market-priced borrowing as DFIs converted into banks.

The Companies Act, 2013 rebuilt the legal architecture of share capital — differential voting rights, buyback under Section 68, capital reduction under Section 66 via NCLT, and private placement discipline under Section 42. Section 56(2)(viib) in 2012 made valuation a tax question, and Section 94B in 2017 imported the OECD BEPS Action 4 limitation on related-party interest deductions. More recently, CCPS and CCDs became the standard institutional round instruments, and the IBC, 2016 made excessive leverage genuinely dangerous for promoters. Current framework details are at the Ministry of Corporate Affairs website.

Step-by-Step Capital Structuring Process

1. Diagnose the Existing Structure — Reconstruct the full share capital history, map every instrument outstanding on a fully diluted basis, list all debt with covenants and security.
2. Define the Objective and Horizon — Lowest cost of capital, maximum founder control, IPO eligibility, or lender comfort produce different answers.
3. Screen Regulatory Constraints — Sectoral FDI caps, FEMA pricing, ICDR requirements, RBI norms, Section 94B and Section 56(2)(viib) exposure applied as filters.
4. Model the Alternatives — Using our financial modelling capability, surviving structures modelled for cost of capital, interest coverage, EPS and covenant headroom.
5. Test Tax and Valuation Consequences — Deductibility, dividend treatment, capital gains, stamp duty and valuation support quantified for each option.
6. Design the Implementation Path — Board and shareholder approvals, authorised capital increase, private placement procedure, valuation reports, FEMA filings, NCLT approval where applicable.
7. Execute and Document — Board resolutions, revised cap table, statutory filings, and a maintained capitalisation record that stands up to institutional due diligence without reconstruction.

Which Instrument Suits Which Situation?

How Does Capital Structuring Differ by Sector?

Why Choose N D Savla & Associates for Capital Structuring?

• Regulatory screening before commercial modelling — impermissible structures eliminated at the start.
• Tax and company law under one roof — valuation support, Section 56(2)(viib), stamp duty and Companies Act procedure assessed together.
• Transaction experience on both sides — M&A and investor-side due diligence experience informs how a structure will be read.
• Listing-aware design — structures tested against ICDR requirements even where an IPO is only a possibility.
• Partner-led, Mumbai-based delivery — six offices across the Mumbai region and Goa.

Most Common Capital Structuring Mistakes

• Raising on convertible instruments without modelling conversion mathematics.
• Treating authorised capital as an afterthought — allotment cannot exceed authorised share capital.
• Funding an Indian subsidiary predominantly through parent-company debt, triggering Section 94B disallowance.
• Issuing shares at a premium without a supporting valuation, exposing Section 56(2)(viib) risk.
• Ignoring the interaction between FEMA pricing floors and income tax fair value ceilings.
• Leaving promoter funding undocumented, risking deemed dividend exposure under Section 2(22)(e).
• Building a structure for the current round only, without modelling accumulated liquidation preferences to exit.

Frequently Asked Questions