A startup approaching a funding round - whether angel, seed, or Series A - will face investor due diligence. Investors and their lawyers will examine the legal structure of the company, the ownership of intellectual property, the compliance history, and the quality of key contracts. A startup that has not prepared will waste weeks fixing avoidable legal problems during the due diligence phase, creating delay risk, negotiating leverage for the investor, and sometimes losing the investment entirely. This checklist covers everything a startup should verify and fix before opening a funding data room.
Section 1: Corporate Structure And Cap Table
Key points to check before relying on this document:
- Incorporation documents verified: The company is validly incorporated, the certificate of incorporation is in order, and the Memorandum of Association and Articles of Association are current and filed with the MCA.
- Cap table is clean and accurate: A cap table lists all shareholders, the number and class of shares each holds, and the percentage ownership. Before a funding round, the cap table must reflect actual current ownership - no undocumented equity promises, no verbal commitments that have not been formalised.
- All prior share issuances have been properly documented: Every historical equity grant - founder equity at incorporation, any shares issued to early employees or advisors - has been documented with a board resolution, share certificate, and proper MCA filings.
- No unauthorised share transfers: Verify in the MCA records that all share transfers were filed and that the current shareholding as per MCA records matches the cap table.
- Existing shareholders have been properly identified and have executed the Shareholders Agreement (if any): All existing shareholders should be party to any current SHA.
Section 2: Intellectual Property Ownership
Key points to check before relying on this document:
- All founders have executed IP assignment agreements: This is the single most commonly missing item in startup due diligence. Each founder must have signed an IP assignment agreement assigning all IP they created before and during incorporation - related to the startup's business - to the company. A verbal understanding is not sufficient.
- All technical consultants and early employees have executed IP assignment clauses: Review every consultant agreement and employment agreement. Confirm each has an explicit IP assignment clause. If any agreement is missing, execute a standalone IP assignment deed with that person immediately.
- Key trade marks are applied for or registered: If the startup's brand is a meaningful asset, trade mark applications should be filed in India (and key export markets) before the funding round. The startup must own the trade mark applications - not the founders personally.
- Open source software audit: If the startup's product uses open source software, confirm that the licences used do not impose copyleft obligations on the startup's proprietary code. Document all open source components used.
- Domain names, social media handles, and app store accounts are registered in the company's name: Not in a founder's personal name.
- No third-party IP claims: No pending or threatened claims that the startup infringes a third party's intellectual property.
Section 3: Key Contracts
Key points to check before relying on this document:
- All material contracts have been executed and are in writing: This includes customer contracts (particularly if revenue is being cited in the pitch), supplier agreements, technology licences, and partnership agreements. Verbal arrangements that have been represented as binding contracts are a due diligence red flag.
- No change of control provisions that are triggered by the investment: Some contracts contain change of control clauses that allow the other party to terminate or renegotiate on a change of ownership. Identify any such clauses before the investment closes.
- Employment agreements with key team members are in place: See our article on Employment Agreement for Startups in India. Specifically confirm: IP assignment clauses are present, confidentiality obligations are documented, and notice periods are clear.
- No undocumented obligations: No verbal promises to customers, employees, or advisors that have not been formalised in writing.
Section 4: Statutory Compliance
Key points to check before relying on this document:
- MCA annual filings are current: Annual return (Form MGT-7), financial statements (Form AOC-4), and all other MCA filings are up to date for all years since incorporation.
- Director KYC is current: All directors have filed their annual Director KYC (Form DIR-3 KYC) for the current year.
- GST registration and returns: If applicable, GST registration is current and all GST returns are filed up to date.
- TDS compliances: TDS has been deducted and deposited correctly on all salary payments (Section 192), consultant payments (Section 194J), and rent payments (Section 194I). TDS returns (Form 26Q, 24Q) are filed up to date.
- PF and ESI registration and contributions: If the startup has 20+ employees (PF) or 10+ employees in ESI-covered activities (ESI), registration and monthly contributions are current.
- Professional tax: Applicable in Gujarat - verify registration and payment.
- Shops and Establishments registration: Required for commercial establishments in Gujarat. Verify registration and compliance.
Section 5: Litigation And Regulatory
Key points to check before relying on this document:
- No material pending or threatened litigation: If any litigation exists, quantify the exposure and disclose to investors proactively rather than having it surface in due diligence.
- No outstanding regulatory notices or show-cause notices: From MCA, GSTN, income tax, or labour authorities.
- FEMA compliance for any existing foreign investments: If the startup has already received investment from a foreign entity or NRI, confirm that all FEMA filings (FC-GPR) have been made within the prescribed timelines.
Section 6: Equity Clean-Up Before Fundraising
Related internal resource: share subscription agreement India Related internal resource: shareholders agreement for startups Related internal resource: ESOP basics for Indian startups
- Convert any convertible notes or SAFEs to equity: If the startup has issued convertible notes or SAFEs (Simple Agreements for Future Equity) to angel investors, these typically convert at the funding round. Ensure the conversion mechanics are documented and the cap table reflects the post-conversion position.
- No residual equity claims from departed founders or employees: If a founder or employee has departed, confirm that their equity position - vested, unvested, and any buyback that was agreed - has been formally documented and, if shares were repurchased, that the repurchase was completed and filed with the MCA.
- ESOP pool is documented: The ESOP pool has been authorised by shareholders, the scheme document is in place, and all outstanding option grants are documented with individual grant letters showing the number of options, vesting schedule, and exercise price.
How Inamdar Legal Can Help
We prepare startups for investor due diligence - conducting a legal health check across corporate structure, IP ownership, key contracts, and compliance, fixing the issues identified, and ensuring the data room is investor-ready. A startup that walks into due diligence with clean legal documentation closes faster and at better terms. Contact our Surat office well in advance of your target fundraising date. Inamdar Legal is a Surat-based legal practice advising startups, founders, MSMEs, and established businesses across Gujarat and India. We combine deep knowledge of Indian company law, contract law, and startup-specific documentation with practical advice that helps founders move fast without creating legal problems they fix later. Contact our Surat office for a consultation. We respond the same day for straightforward matters. DISCLAIMER: This article is for general informational purposes only and does not constitute legal advice. Laws and procedures may change. Please consult a qualified lawyer for advice specific to your situation.
When to obtain a review
A review is especially useful when…
- — You are about to sign, send, rely on or respond to this document.
- — The draft was copied from an old template or another state.
- — There is money, property, business control, statutory deadline or reputation risk involved.
- — You need Surat/Gujarat-specific drafting, review or negotiation support.
Legal information notice
This article is general legal information for India and Gujarat. It is not a substitute for advice on your specific facts, documents, limitation period, stamp duty position or court strategy.