CCPS Terms Explainer + Dilution Model

Understand the Indian VC instrument, negotiated rights, and the maths behind a round.

What are CCPS?

Compulsorily Convertible Preference Shares (CCPS) are a hybrid instrument issued by Indian private limited companies to investors. They are preference shares that MUST convert into equity shares at a specified trigger (time-based or event-based). CCPS is the predominant instrument in Indian VC rounds.

Why not direct equity?

FEMA and RBI rules require FDI investments to be made at a minimum price based on a valuation methodology (FEMA (Non-debt Instruments) Rules, 2019). By issuing CCPS first, the company receives capital at the negotiated valuation, then converts to equity at the same price. Equity directly to foreigners requires same pricing but CCPS is the market convention.

Why not a SAFE?

US SAFEs do not translate directly to India — the Companies Act does not recognise convertible notes that are not debt or equity. CCPS is the closest Indian equivalent to a US Preferred Stock round. Convertible Debentures (CCDs) are the debt-instrument equivalent.

Statutory basis: Companies Act 2013 s.43 (kinds of share capital) + s.47 (voting rights) + s.55 (issue of preference shares) + s.133 + Table H in Schedule I (articles for preference shares); FEMA (Non-debt Instruments) Rules, 2019 + Annex 1 (pricing guidelines for conversion to equity); SEBI ICDR Regulations (for listed companies — not applicable to Pvt Ltd); Ind AS 32 (financial instruments — CCPS classification)

Common questions

Preference shares, statute-cited.

What is a CCPS?+

A Compulsorily Convertible Preference Share (CCPS) is a preference share that must convert into equity shares at a pre-agreed ratio or trigger, issued under s.43(a) read with s.55 of the Companies Act 2013. Unlike optionally convertible preference shares, the holder has no choice — conversion is mandatory. It is India's most common VC instrument because it combines downside protection with guaranteed equity upside.

Can CCPS be redeemed?+

No. Because the instrument is compulsorily convertible, there is no redemption leg — s.55(2) of the Companies Act 2013 restricts a company from issuing irredeemable preference shares, but a CCPS converts rather than redeems, which is why its terms are structured around the conversion trigger and ratio.

What is a liquidation preference?+

A liquidation preference gives preference shareholders the right to be paid first out of the proceeds of a sale or winding-up, before equity holders receive anything. It is a negotiated term in the shareholders' agreement and the Articles, commonly 1x non-participating in Indian rounds. The preference is contractual; it does not override the winding-up priority in the Companies Act.

What is anti-dilution protection?+

Anti-dilution adjusts the conversion ratio of a CCPS if the company later issues equity at a lower valuation, protecting the investor's ownership percentage. Indian term sheets typically use weighted-average (not full-ratchet) anti-dilution. The adjustment is a contractual formula in the SHA; it is not mandated by the Companies Act.

What filings follow a CCPS round?+

Within 30 days of allotment you file Form PAS-3 (Return of Allotment) with the ROC under s.39(4) of the Companies Act 2013. If the investor is foreign, Form FC-GPR must be filed with the RBI within 30 days of allotment under the FEMA (Non-debt Instruments) Rules 2019, and the CCPS must comply with the FDI pricing guidelines.

What is the difference between a SAFE and a CCPS?+

A SAFE (Simple Agreement for Future Equity) is a contractual right to future equity with no interest, no maturity date and no liquidation preference; a CCPS is an actual preference share issued now with defined rights under the Companies Act 2013. CCPS is the dominant funded-round instrument in India; SAFEs are more common at the pre-seed/angel stage.