Resource Library4 min read956 words
What this covers: Pre-funding legal readiness checklist for founders, 25 items in 5 categories covering the areas investors check in due diligence before investing.
| 1.1 | **Incorporation as Private Limited Company** | Is the company incorporated in the correct structure for VC investment? LLPs and sole proprietorships are generally not accepted by institutional investors | Certificate of Incorporation; PAN card; latest MCA master data |
| 1.2 | **Registered office and principal place of business correctly recorded with MCA** | Address must match MCA records; ROC filings must be current | MCA profile showing address; evidence that ROC communications are being received |
| 1.3 | **All ROC filings current** | Annual returns (MGT-7), financial statements (AOC-4), and event-based filings all up to date with no outstanding default notices | Last 3 years’ annual returns and financial statements as filed with ROC |
| 1.4 | **Objects clause covers the actual business** | Can the company legally carry on the business described in the pitch? | MoA showing objects clause; if too narrow, amendment by special resolution required |
| 1.5 | **All founders are on the cap table correctly** | Shareholding reflects the agreed split; matches between founders’ agreement, Register of Members, and MCA filings | Current Register of Members; Form MGT-7; Form PAS-3 for each allotment |
Category 2: IP and Technology (5 Items)
| 2.1 | **Founder IP assignment agreements signed before or at incorporation** | All pre-incorporation IP (code, designs, domain names, brand) assigned in writing to the company from each founder | Signed IP assignment agreements from every founder; must predate or be contemporaneous with first institutional investment |
| 2.2 | **Domain names registered in company’s name** | Company owns the domains it operates under; no domain in a founder’s personal name | Domain registration certificates (WHOIS printout or registrar dashboard); transfer to company if currently in founder’s name |
| 2.3 | **Trademark applications filed in company’s name** | Brand protection; no third-party infringement risk | Trademark application filings from IP India portal; registration certificates if granted |
| 2.4 | **No open source copyleft contamination in core product** | GPL/AGPL-licensed code in core product may require the product to be open-sourced | Open source audit report (or engineering team’s self-certification of open source components used and their licence types) |
| 2.5 | **All contractor and agency IP assignments complete** | Any third-party developer, design agency, or freelancer who worked on the product must have signed an IP assignment | Signed contractor agreements with IP assignment clause; receipts for all contracted work |
Category 3: HR and Employment (5 Items)
| 3.1 | **All employees on formal employment agreements** | Verbal employment arrangements create compliance risk; every employee must be on a written contract | Signed employment agreements for all current employees |
| 3.2 | **Employment agreements include IP assignment and confidentiality** | All employee-created IP must be assigned to the company; confidential business information must be protected | Review employment agreement template for IP assignment and confidentiality clauses |
| 3.3 | **PF and ESIC compliance current** | All eligible employees registered; contributions current; no outstanding PF/ESIC dues | EPFO registration; ESIC registration; last 6 months’ PF contribution challans |
| 3.4 | **POSH policy in place (if 10+ employees)** | Mandatory for companies with 10 or more employees under the POSH Act 2013 | Internal Complaints Committee (ICC) constitution order; POSH Policy document signed by all employees |
| 3.5 | **No undocumented equity promises to team members** | Any equity commitment to any team member (employee or advisor) must be documented in writing; verbal commitments are a litigation risk | Written confirmation that no undocumented equity obligations exist; or, if any exist, formalize them immediately |
Category 4: Regulatory Compliance (5 Items)
| 4.1 | **DPIIT Startup India recognition** | Unlocks angel tax exemption (S.56(2)(viib) Income Tax Act); ESOP deferral; IP filing rebates | DPIIT Recognition Certificate; recognition number; verify on startupindia.gov.in |
| 4.2 | **GST registration (if turnover threshold crossed)** | GST registration is mandatory above INR 20 lakh annual turnover (INR 10 lakh for special category states) | GST registration certificate; last 6 months’ GST returns |
| 4.3 | **FEMA compliance for any prior foreign investment** | Any foreign investor (including NRIs) must have been onboarded with proper FC-GPR filing | FC-GPR filings for all foreign investment received; verify on RBI reporting portal |
| 4.4 | **Sector-specific licences in place** | E.g., RBI authorisation (fintech), FSSAI (food), CDSCO (health/pharma), state-specific professional licences | Copies of all applicable sector licences and registration certificates |
| 4.5 | **Income tax returns filed** | Returns for all financial years since incorporation should be filed and up to date | Income tax return acknowledgments for all years since incorporation |
Category 5: Cap Table and Governance (5 Items)
| 5.1 | **Clean and accurate cap table** | Fully diluted cap table matches MCA records; no unexplained gaps between allotments | Fully diluted cap table (equity + ESOP pool + all convertible instruments); reconciled with Register of Members |
| 5.2 | **Founder vesting implemented** | 4-year reverse vesting with 1-year cliff; buyback right at face value for unvested shares | Founders’ agreement with vesting schedule; board resolution implementing vesting |
| 5.3 | **ESOP scheme adopted (if required)** | If any options have been granted, or if investor requires a pre-investment ESOP pool, the ESOP scheme must be approved by special resolution | Board and shareholder resolution approving ESOP scheme; scheme document; all option grant letters issued to employees |
| 5.4 | **No pledges or encumbrances on founder shares** | Founder shares pledged to a bank or individual lender create complications in funding round | Confirm with founders: written declaration that no shares are pledged; review MCA records for any charges |
| 5.5 | **Data room organised and complete** | All the above documents in a structured, accessible data room; no missing documents | Organised folder structure covering: Corporate, IP, Employment, Regulatory, Financial, Investor Agreements; all documents are signed (not just drafts) |
This resource is for general information purposes only and does not constitute legal advice. For advice on your specific situation, seek appropriate professional counsel.
| **Corpus Lawyers | 148 Lawyers Chambers, Saket Court Complex, New Delhi 110016 | mail@corpuslawyers.in** |
Prashant Kumar Nair is an Advocate-on-Record at the Supreme Court of India. He practises across insolvency and restructuring, arbitration and dispute resolution, real estate and infrastructure, corporate and commercial law, taxation, intellectual property, regulatory and compliance, and capital markets law. He is a doctoral researcher at RGNUL focusing on the arbitration-insolvency interface. He is the founder of Corpus Lawyers.
linkedin.com/in/prashant-kumar-nairThis article is for informational purposes only and does not constitute legal advice. The views expressed are those of the author in a personal capacity. Readers should seek independent legal counsel before acting on any matter discussed herein. While every effort has been made to ensure accuracy, the author makes no representation as to the completeness or currency of the information at the time of reading.
