Form CN Filing: Procedure, Documents & Penalties

Introduction

Form CN filing is a vital regulatory requirement for those Indian Start-ups who issue convertible notes to the non-resident/ foreign investors. According to the FEMA guidelines, it is compulsory for the entity to file this form within the 30 days of issuance with proper documentation and information. Filing within a timeframe helps to avoid hefty penalties and keep transparency of foreign capital inflows. Convertible notes are popular among startups because of their flexible form, but in order to stay in compliance with the law, they need to be declared. In this article, we will understand all about the FDI reporting including Form CN, its requirements, stepwise procedure, fees, penalties and time duration.

What is Form CN?

Form CN is a statutory form required to be filed by the Indian Start-up company that issues convertible notes to a person resident outside India. It is also required to be filed when resident transfers convertible note to a non resident Convertible notes are financial instruments that begin as debt but can later be converted into equity. The CN form filing is mandatory under the RBI guidelines that ensure smooth transaction under the FEMA regulation and maintain transparency.

What are the due dates for filing Form CN?

A Form CN filing is required when Convertible Notes are issued or transferred by Start-ups. CNs should be filed within 30 days of issuance/transfer.

When CN Required to file?

In two scenarios, Form CN is required to file:

1. Issuance to Convertible Notes: If any Indian start-up entity issues convertible notes to the Non-resident person or foreign investor, must file this form within the 30 days from the issuance date. It helps RBI to track foreign capital inflows.
2. Transfer of Convertible Notes: In some scenarios, where the resident transferred the convertible note to the non-resident or non-resident to resident, they also have to file form CN within the 30 days from the transfer.

All foreign investment transactions are recorded and reported in accordance with regulatory requirements through this timely filing.

Required Documents for CN Filing

There are several documents are required for Form CN Filing, the complete list is as follow:

1. FIRC/Debit Statement
2. KYC Copy
3. Document evidencing date of issue of Convertible Note
4. Registration certificate for being a start-up
5. Board resolution
6. CA/CS Certificate
7. Declaration
8. Other relevant documents

Stepwise Procedure for CN Filing

Here, is the stepwise procedure for CN filing given below:

Step 1: Creation of Entity user/Entity Master

For first time filings, New Entity Users login needs to be created for the company first. In the new entity user basic company details like CIN no , authorized person email etc along with authority letter attachments goes . It is approved by the AD bank in 1-2 days.

Once an Entity user is created, login id and password comes on authorized person email . After this entity user form is filed with issue details and other company basic details . It is approved by AD bank in 2-3 days.

Step 2: Registration of New business User

Once Entity master form is approved , new business user registration needs to be done .It is basically authorized person login to report the transactions for the entity that has authorized him during entity master registration.Further, at the time of registration, BU has to select the IFSC code of the bank which would approve the eKYC and the reporting would be made in SMF. In case the IFSC details are changed i.e BU wishes to submit the reporting to another branch or another bank, the entity being the same, he/she needs to repeat the registration process for Business users with the new IFSC code and obtain separate Login.

After BU submits the registration form, the same will have to be verified by the AD Bank Branch concerned. The approval/ rejection of the same would be communicated through email notification to the BU.Once approved login id and password comes through email .It generally takes 4-5 working days to get business user registration.

Step 3: Login into FIRMS Portal and Reset Password

Once a business user is created , login to the firm's portal using id and password and reset default password.

Step 4: Login SMF for form filing and submission

Single Master form ( SMF ) is a master form which provides for the reporting of 9 forms for foreign investment viz., FC-GPR, FC-TRS, LLP-I, LLP-II, CN, DRR, ESOP, DI, InVi. Before CN form filing, you have to login into the Single Master Form (SMF) section via the FIRMS Portal . Basically this section is for reporting foreign investment. Click on a dropdown menu tab of Return type. Click on it and then select Form CN. Next, go with Add New Return. Here, the CN form will open where you need to provide all the required and necessary information related to the foreign investment such as types of transaction and related information. These are common investment details to all forms.

Step 5: Complete the CN form

Here, You will get some tabs, fill all of them accordingly:

Tab 1: For the issue of Convertible Notes: Here, I need to provide information on the issuance of Convertible notes and related details such as date, amount and investor information.

Tab 2: For transfer of convertible notes: In this section, enter the information of transfer of Convertible Notes with transferor and transferee details additionally their relevant dates and amounts.

Note: Make sure, all the details are filled accurately and relevant documents must attach accordingly.

Step 6: Submit the form

At the end, when all these aforementioned tabs are done, you have to save and submit the form to the RBI or save as Draft if you want more time to review it for later. Click Reset if you wish to reset all the information and start afresh, or Back if you wish to return to the dashboard without saving.

Approval or resubmission will be communicated by RBI via mail . In case of any query , forms need to be resubmitted with documents asked . If approved , fee and bank details will be shared by RBI and needs to be paid within 7 days of approval. No other acknowledgement will be shared from the RBI end.

Fees for Form CN filing

There are no government fees required for Form CN Filing, but the professional fees may vary as per their expertise. At Bizfoc, We provide this service at a minimum rate of Rs. 4,999 only, assuring the accurate compliance and effective reporting requirements.

Penalties in Delay Filing

If there is any delay to file CN form, the company has to face penalties as per the FEMA guidelines. There is a penalty of Rs.7,500 + (0.025% × A × n) for late reporting.

As per the RBI’s circular, the maximum LSF amount cannot exceed the amount involved in the delayed reporting.

In case even Late submission fee is not paid within 3 years , Penal action under FEMA , 1999 will be taken.

Note:

a) “n” is the number of years of delay in submission rounded-upwards to the nearest month and expressed up to 2 decimal points.

b) “A” is the amount involved in the delayed reporting.

Time Taken in Form CN filing

The time taken for Form CN filing basically depends upon the documentation and the transaction's complexities. If all the required documents are accurate and filled accurately, generally it will take 10 to 15 days. Furthermore, the timeframe may vary according to the specific situation and scenarios. Bizfoc ensures your filing process in just 15 days, that includes many steps that assure the accurate compliances such as documentation, preparation, verification and many more to complete the procedure more effortlessly.

How can Bizfoc help you?

Bizfoc provides a comprehensive professional guidance over CN filing that guarantees compliance with FEMA guidelines. Our service includes:

1. Expert Guidance: Our professional team will provide expert and detailed advice over CN form filing accurately that covers each required tab and information.
2. Document Preparation: Our expert team helps you to collect and prepare all the necessary documents that make your procedure more fluent. We will coordinate with AD banks for any documentation required from their end.
3. Form Submission: We have a number of experienced team members who ensure timely and accurate filing that also avoids hefty penalties.

Connect with us and make your CN filing procedure easier and penalty free.

Conclusion

For the Indian start-ups who are involved with convertible notes involving foreign investors, filing the form CN is very essential compliance documents. Using our expert guidance, document preparation, and filing services, we ensure that your company avoids penalties and maintains a smooth relationship with regulators. Trust Bizfoc to manage your CN filing accurately, assuring you to focus on business growth while we take care of the compliance details.

Frequently Asked Questions