Due Diligence Checklist Before Raising Startup Funding in India

What Is Due Diligence?

Due diligence is the process through which investors verify whether a startup is legally compliant, financially sound, and operationally prepared for investment. The objective is to identify:

• Legal risks
• Financial liabilities
• Tax exposures
• Regulatory non-compliance
• Ownership issues
• Commercial risks

Why Due Diligence Matters

Investors want confidence that the company is legally incorporated, founders own the business they claim to own, financial records are accurate, intellectual property is protected, and regulatory compliances are up to date. A well-prepared startup often experiences faster funding closures and smoother negotiations.

Complete Due Diligence Checklist

1. Corporate Documents

Certificate of Incorporation, MOA, AOA, PAN & TAN, GST registration (if applicable), Startup India recognition (if applicable), CIN details and registered office proof.

2. Shareholding & Cap Table

Current cap table, share certificates, register of members, ESOP details, shareholder agreements, share transfer records and previous funding documents.

3. Founder Documentation

PAN, Aadhaar, passport (if applicable), DIN, employment agreements, non-compete agreements and confidentiality agreements.

4. Board & Secretarial Records

Board meeting minutes, shareholder resolutions, AGM records, ROC filings, statutory registers and director disclosures.

5. Financial Records

Audited financial statements, Profit & Loss Account, Balance Sheet, Cash Flow Statement, Trial Balance, General Ledger, bank statements, budget projections and the financial model.

6. Tax Compliance

Income Tax Returns, GST returns, TDS returns, advance tax records, tax assessments, outstanding notices and payment challans.

7. Accounting Health Check

Revenue recognition, expense classification, related-party transactions, loan documentation, fixed asset records and inventory records (if applicable).

8. Intellectual Property (IP)

Trademark registrations, patent applications, copyright registrations, design registrations, domain ownership, software ownership documents and IP assignment agreements.

9. Customer Contracts

Customer agreements, subscription agreements, purchase orders, vendor contracts, MSAs and SLAs.

10. Employee & HR Records

Employment contracts, salary structure, payroll records, ESOP agreements, PF & ESI compliance (if applicable) and consultant agreements.

11. Regulatory Licenses

Shops & Establishment registration, Import Export Code (IEC), professional tax, industry-specific licenses, environmental and sectoral approvals.

12. Litigation Review

Pending court cases, arbitration matters, tax disputes, employment disputes and regulatory notices. Transparency builds investor confidence.

13. Technology & Data Compliance

Privacy policy, terms of service, cybersecurity practices, data protection policies, software licenses and cloud agreements.

14. Commercial Due Diligence

Business model, revenue streams, customer acquisition, market opportunity, competitive positioning, unit economics and churn analysis.

15. Funding History

Angel investments, convertible notes, SAFE agreements, preference shares, valuation reports and share allotments.

Common Red Flags Investors Notice

• Missing ROC filings
• Unpaid taxes
• Weak accounting records
• Founder disputes
• Poor cap table management
• Missing IP ownership
• Verbal customer agreements
• Compliance gaps
• Undocumented related-party transactions

Best Practices Before Raising Funds

Organise a Virtual Data Room (VDR) to store all documents securely for investor access; conduct an internal due diligence review to resolve issues early; clean up the cap table; resolve pending ROC, GST, TDS and Income Tax filings; protect intellectual property; and prepare realistic financial projections.

Conclusion

Due diligence is more than a compliance exercise — it is an opportunity to demonstrate that your startup is well-managed, transparent, and investment-ready. Founders who proactively organise legal documents, financial records, tax filings, intellectual property and governance records are better positioned to attract investors and close funding rounds efficiently. Before approaching investors, conduct your own due diligence review.

Need expert help?

TAXAJ’s Chartered Accountants, Company Secretaries and legal team handle this end-to-end for businesses and individuals across Delhi, Bengaluru, Goa and Bihar. Ask a question in our Community or get in touch with TAXAJ.

This guide is general information and is not a substitute for professional advice. Rules, rates and deadlines can change — verify the latest position on the relevant official portal or consult a professional before acting.