CCPS Valuation in India: Compulsorily Convertible Preference Shares

What is a CCPS valuation?

Compulsorily convertible preference shares (CCPS) are preference shares that must convert into equity shares on a fixed date or event. They are the usual instrument for venture rounds in India because they carry a preference on liquidation and dividends while the conversion terms protect the investor against a later down round.

A CCPS valuation answers two questions. First, what is the fair value of the company's equity today, so that the CCPS issue price can be justified. Second, at what price or by what formula will each CCPS turn into equity shares, and does that price respect every law that applies. Three laws can apply to one issue, and they do not name the same signatory.

When is a CCPS valuation required?

Rule 13 treats convertible securities as "shares or other securities" for a preferential offer, so the registered valuer requirement applies to CCPS in the same way as to equity. The issue price cannot be lower than the price determined on the basis of the registered valuer's report (Rule 13(2)(g) and Rule 13(3)). For the wider procedure of a preferential allotment, see our page on preferential allotment valuation under section 62(1)(c).

Who can sign a CCPS valuation?

CA V. Viswanathan signs the Companies Act report as an IBBI Registered Valuer for securities or financial assets (IBBI/RV/03/2019/12333) and the FEMA certificate as a chartered accountant, on the same valuation date. His registration can be checked on the IBBI register of registered valuers.

How are CCPS valued?

The work has two layers. The first is the value of the business and of its equity as a whole, normally by discounted cash flow for a going concern, cross-checked against comparable companies or recent transactions, and against net assets for an early-stage company with little revenue.

The second layer is the allocation of that equity value between classes. A CCPS is not worth the same as an equity share when it carries a liquidation preference, a preferential dividend, anti-dilution protection or a conversion ratio that can change. Where those rights are material we allocate value through a waterfall of the liquidation preferences or an option-pricing allocation, and we state in the report which rights were valued and which were treated as immaterial.

• Liquidation preference: 1x non-participating, participating, or with a multiple. It sets who is paid first on a sale or winding up.
• Conversion ratio and adjustments: fixed ratio, price-based formula, valuation cap, discount to the next round.
• Anti-dilution: broad-based weighted average or full ratchet, and whether it works by adjusting the conversion price.
• Dividend: a nominal preferential dividend such as 0.01% is common; a real coupon changes the value.

How do CCPS, CCDs and OCPS differ for valuation?

Investors also use compulsorily convertible debentures (CCDs) and, less often, optionally convertible preference shares (OCPS). The valuation work is similar; the legal treatment is not.

Should the conversion price be fixed now or at conversion?

Rule 13(2)(h) gives the company a choice, which must be made and disclosed at the time of the offer. The price of the equity shares that result from conversion can be determined either upfront, on the basis of the registered valuer's report given when the CCPS are offered, or later, at a time not earlier than thirty days before the holder becomes entitled to apply for the shares, on a registered valuer's report given not earlier than sixty days before that date.

Where the holder is a non-resident, FEMA narrows the choice. The price or conversion formula has to be determined upfront at the time of issue, and the price at conversion cannot be lower than the fair value worked out when the instrument was issued (Explanation to Rule 21(2)(a)). A formula that could convert below that floor does not comply, however it is drafted in the shareholders' agreement.

Worked example: conversion formula with a FEMA floor

Illustrative figures, not a real client. A private company has 10,00,000 equity shares on a fully diluted basis. The registered valuer determines the fair value of equity at ₹20,00,00,000, that is ₹200 per share. A foreign fund invests ₹5,00,00,000.

• CCPS issued at ₹200 each: ₹5,00,00,000 ÷ ₹200 = 2,50,000 CCPS.
• Conversion price under the term sheet: the lower of ₹250 (the cap) and 80% of the price per share in the next qualified round.
• Floor: the conversion price can never be below ₹200, the fair value at issue. This is the FEMA condition.
• Equity shares on conversion = ₹5,00,00,000 ÷ conversion price, with fractions ignored.

At a next-round price of ₹220, the 20% discount would give ₹176, which is below the floor, so the conversion price is held at ₹200 and the fund receives 2,50,000 shares. At ₹300 the formula gives ₹240 and 2,08,333 shares. At ₹400 the cap of ₹250 applies and the fund receives 2,00,000 shares. The stake is the investor's shares divided by 10,00,000 existing shares plus the new shares; it ignores the shares issued in the next round itself.

What documents are needed?

• Audited financial statements for the last three years, or since incorporation, and management accounts up to the valuation date
• Projections for five years with the assumptions behind revenue, margins and capital expenditure
• Capitalisation table on a fully diluted basis, including options and earlier convertible instruments
• Term sheet and draft share subscription and shareholders' agreements, with the CCPS terms
• Articles of association, to confirm that preference shares are authorised
• For a foreign investor: the investor's details, sector and entry route

What is the process and how long does it take?

1. A first call to confirm which laws apply and which reports are needed.
2. Engagement letter with a fixed fee and a document list.
3. Valuation of the business and equity; allocation between classes where the CCPS rights are material.
4. Draft report shared with management for factual confirmation.
5. Signed registered valuer's report with UDIN, and the FEMA certificate where a non-resident is involved.
6. Support with the explanatory statement, which must disclose the basis of the price and the valuer's details.

Reports are usually issued within 5–7 working days of complete information, and within 15 working days for complex cases. The clock starts when the last document is received, not on the date of engagement. After the report, the company passes a special resolution and completes the allotment within twelve months of it (Rule 13(2)(e)); shares offered by private placement are allotted within sixty days of receiving the application money (section 42(6)).

What does a CCPS valuation cost?

Our fee for a CCPS valuation starts from ₹35,000 + 18% GST. The figure depends on the number of instruments or companies to be valued, whether projections exist, and how many laws the same transaction has to satisfy. We quote a fixed fee after a first call and before any work starts. Statutory filing fees, stamp duty and any merchant banker's fee are separate.

Related valuations

An ESOP pool created in the same round is valued separately: see ESOP valuation in India. The certificate the bank needs for reporting a foreign investment is explained in FEMA valuation certificate for FC-GPR and FC-TRS.

Every valuation report we issue, with the law behind it and the person who must sign it, is listed on our valuation services page.

About V Viswanathan & Associates

Frequently Asked Questions

Is a registered valuer mandatory for issuing CCPS?

Yes, for an unlisted company issuing CCPS on a preferential basis. Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 requires the price to be determined on the basis of a registered valuer's report, and the issue price cannot be lower than that price.

Can a chartered accountant sign a CCPS valuation?

For FEMA and income-tax purposes, yes. Rule 21 of the FEMA (Non-debt Instruments) Rules, 2019 accepts a chartered accountant, and Rule 57 of the Income-tax Rules, 2026 allows a report from a merchant banker or an accountant for unquoted preference shares. For the Companies Act the signatory must be a registered valuer.

Does Rule 11UA still apply to CCPS?

Rule 11UA of the Income-tax Rules, 1962 applies to periods up to 31 March 2026. From 1 April 2026 its place is taken by Rule 57 of the Income-tax Rules, 2026. For unquoted shares other than equity shares, both rules use the price the security would fetch in the open market on the valuation date.

Does angel tax apply to a CCPS issue?

No. Section 56(2)(viib) of the Income-tax Act, 1961 does not apply from assessment year 2025-26 (Finance (No. 2) Act, 2024). It remains relevant only to assessments and appeals for share issues up to 31 March 2024.

Can CCPS convert at a discount to the next round?

Yes, by a formula fixed at the time of issue. Where the holder is a non-resident, the conversion price cannot fall below the fair value determined when the CCPS were issued, so the formula needs a floor at that value.

Is one valuation report enough for the Companies Act and FEMA?

Usually two documents are issued on one valuation date: a registered valuer's report for the Companies Act and a certificate for FEMA. One person can sign both if he or she is both a registered valuer and a chartered accountant.

Do CCPS count as equity under FEMA?

Yes. Preference shares that are fully, compulsorily and mandatorily convertible are equity instruments under the FEMA (Non-debt Instruments) Rules, 2019. Optionally or partially convertible preference shares are treated as debt.

Is tax payable when CCPS convert into equity shares?

No capital gains arise on the conversion itself. Conversion of preference shares of a company into its equity shares is not regarded as a transfer under section 47(xb) of the Income-tax Act, 1961 and, from tax year 2026-27, under section 70(1)(zb) of the Income-tax Act, 2025.

How long does a CCPS valuation take?

Usually 5–7 working days from complete information, and up to 15 working days for complex cases such as several classes of preference shares with different rights.

What is the difference between CCPS and CCDs for valuation?

Both need a registered valuer's report under Rule 13 when issued on a preferential basis, and both are equity instruments under FEMA when fully and mandatorily convertible. A CCD is a debenture until it converts, so its coupon and its ranking as debt are valued differently from the preference rights of a CCPS.

Related Guides

Law stated as at 13 November 2026. Official sources: Companies Act, 2013 and rules (India Code), Master Direction on Foreign Investment in India (RBI), Rule 57, Income-tax Rules, 2026 (Income Tax Department), IBBI register of registered valuers, section 70, Income-tax Act, 2025 (Income Tax Department). This page is general information, not advice on a specific transaction.