Overview
A startup that incorporates well, obtains DPIIT recognition early, structures its ESOP scheme correctly before the first grant, and files each investor allotment on time builds a compliance record that stands up to serious investor due diligence. A startup that does none of these things faces a painful remediation exercise before every funding round — with legal costs, timeline risk, and investor credibility damage at each stage. We work with founders from day one to build the compliance foundation that makes subsequent growth frictionless.
Key Compliance Obligations
Post-Incorporation Setup
Within the first 30 days: first Board meeting to allot shares per subscriber sheet, appoint auditor, open bank account, and pass operational resolutions. Shares must be allotted by board resolution and PAS-3 filed within 15 days.
DPIIT Recognition (Pre-Angel Round)
Apply for DPIIT Start-up India recognition before the first equity investment from an Indian angel investor. Recognition provides Angel Tax exemption under Section 56(2)(viib). Certificate of Incorporation, MOA, PAN, and a business description are required.
ESOP Scheme — Full Compliance
AoA amendment to permit ESOPs (special resolution + MGT-14 within 30 days). Board resolution approving the scheme. Shareholder special resolution at EGM. Individual grant letters for each employee. PAS-3 at each exercise event. All four steps must precede the first grant.
Investor Round Documentation
Share Subscription Agreement, Shareholders' Agreement, and updated AoA are the core transaction documents. Post-closing: PAS-3 (domestic investors within 15 days), FC-GPR (foreign investors within 30 days on FIRMS portal), and AoA amendment filing if SHA triggered AoA changes.
Annual Compliance from Year 1
Even loss-making startups must file MGT-7, AOC-4, and maintain board meeting minutes from the first year. Skipping early filings creates a debt of additional fees that compounds with time and surprises founders during pre-Series A due diligence.
Common Compliance Failures
These are the gaps we most frequently encounter when onboarding startups & ventures clients — situations that require remediation before the company can present a clean compliance record to investors, lenders, or acquirers.
- ESOP grants issued before AoA clause or special resolution — scheme legally defective
- Angel round completed without DPIIT recognition — Angel Tax exposure on premium over fair value
- Foreign investor allotment without FC-GPR — FEMA violation requiring compounding
- SHA signed but AoA not updated — investor rights unenforceable against third parties
- First 2-3 years of annual filings skipped — ₹10–50 lakh in late additional fees by Series A
Key Risk
Angel Tax under Section 56(2)(viib) applies to amounts received in excess of fair market value from resident investors. DPIIT recognition, obtained before the round, is the primary statutory exemption — and it cannot be obtained retrospectively.
How We Help
We provide end-to-end governance and compliance support for startups & ventures companies — from maintaining the annual compliance calendar to managing FEMA filings, structuring equity events, and preparing for investor due diligence. Every engagement is handled by a qualified governance and advisory professional with direct client access.