Startup Legal Checklist India: The First Twelve Months

The most expensive thing an early stage company gets wrong is rarely a bad contract. It is the missing one. Two founders incorporate a private limited company, split the shares evenly on the incorporation form, start building, and write nothing else down. Eighteen months later one of them leaves, and half the cap table leaves with him.

Below is the startup legal checklist India throws at a new private limited company in its first year, set out roughly in the order the deadlines arrive. Very little of it is difficult. Almost all of it is cheap on time and expensive late.

Choose the entity for the round you want, not the one you have today

Four structures come up in practice, and they are not interchangeable once outside money is involved.

Structure	Who it suits	The catch
Private limited company	Anything that may raise external capital	Heaviest compliance load, board meetings and ROC filings from day one
Limited liability partnership	Services firms with no funding plan	Institutional investors will not take an LLP interest, and converting later costs months
One person company	A solo founder testing an idea	Single member only, and conversion becomes compulsory once thresholds are crossed
Sole proprietorship	Pre revenue experiments	No separate legal identity, so personal assets stay exposed

If outside money is even a possibility, incorporate a private limited company under the Companies Act 2013. Equity shares, compulsorily convertible preference shares, convertible notes and employee stock options all assume that structure. An LLP can be converted later, but it takes months at exactly the point you are trying to close a round.

Incorporation runs through the SPICe+ form on the MCA portal, which bundles name reservation, director identification numbers, PAN, TAN and provident fund registration into one filing. Two obligations then follow immediately, and both get missed:

• The board must appoint the first statutory auditor within 30 days of incorporation. If it does not, the members must do it within 90 days.
• Form INC-20A, the declaration of commencement of business, must be filed within 180 days of incorporation. Until it is filed the company cannot lawfully begin business or borrow, the penalty on the company and its officers is substantial, and the registrar can begin striking the company off.

Write the founder documents before you need them

The memorandum and articles filed at incorporation say almost nothing about the deal between founders. That belongs in a separate founders agreement, signed while everyone still agrees. Five clauses do the real work.

• Vesting. Founder shares should vest over time, commonly four years with a one year cliff, so a founder who leaves in month seven does not keep a full block. It is implemented through a subscription and shareholders arrangement with a transfer or buyback right over unvested shares at a nominal price.
• Roles and time commitment. Who is full time, and what happens to their shares when that stops.
• Intellectual property assignment. Each founder assigns to the company everything created for it, including code and designs made before incorporation.
• Transfer restrictions. Right of first refusal, tag along and drag along. These must also go into the articles of association. A restriction that lives only in a shareholders agreement is difficult to enforce against a transferee who was not a party to it.
• Deadlock and exit. How a founder is removed, what happens to the shares, and where a dispute is decided. A dispute clause that actually functions is worth more than the rest of the agreement combined, and it is the clause most often copied blind from a template. Our note on drafting an arbitration clause that works sets out what has to be in it.

Move the intellectual property inside the company

Founders assume the company owns what the team built. Often it does not. Section 17 of the Copyright Act 1957 gives the employer first ownership of work made by an employee in the course of employment under a contract of service, subject to any agreement. An independent contractor, a freelance designer or an agency is not an employee. Their copyright stays with them unless it is assigned, and Section 19 requires that assignment to be in writing and signed. A verbal understanding and a paid invoice do not transfer copyright.

Nothing on a startup legal checklist India produces gets tested harder in diligence. The position to reach:

• Employment letters contain an assignment and confidentiality clause.
• Every contractor, agency and intern signs an assignment before the first payment, not at the end of the engagement.
• Domain names, code repositories, cloud accounts and social handles sit in the company’s name and on company email, not a founder’s personal account.
• The brand name is filed as a trade mark under the Trade Marks Act 1999 in the right classes. Rights in India follow use as well as registration, but a registration is what gets an infringing listing taken down quickly. Filing is inexpensive at this stage and gets harder once someone else has filed for the same mark. We cover the process in more detail on our trade mark and IP practice page.

The first year filing calendar

These are the recurring dates. A missed filing is rarely fatal, but the additional fee for late ROC filings accrues daily with no cap.

Filing	When it is due
First board meeting	Within 30 days of incorporation
Appointment of first auditor	Within 30 days of incorporation, by the board
Form INC-20A	Within 180 days of incorporation
Issue of share certificates	Within two months of allotment
First annual general meeting	Within nine months of the end of the first financial year
Form AOC-4, financial statements	Within 30 days of the annual general meeting
Form MGT-7 or MGT-7A, annual return	Within 60 days of the annual general meeting
DIR-3 KYC for every DIN holder	By 30 September each year
Form DPT-3, return of deposits	By 30 June each year
Form MSME-1	Half yearly, for amounts owed to micro and small suppliers beyond 45 days

Small and one person companies need only two board meetings a year, one in each half, with a gap of not less than 90 days. Others need four. This table is the part of a startup legal checklist India enforces with money penalties, so it is the part to diarise first.

Raising money without breaking Section 42

A private company raises money by private placement under Section 42 of the Companies Act 2013. The rules are mechanical and unforgiving. The offer goes to identified persons through a Form PAS-4 offer letter, to not more than 200 persons in a financial year excluding qualified institutional buyers and employees holding options. Subscription money must come through banking channels into a separate account, and it cannot be used for any purpose until Form PAS-3 is filed with the registrar, which is due within 15 days of allotment. Cash subscription is not permitted.

Two more points come up constantly.

• Valuation. Shares issued at a premium need a valuation report from a registered valuer. Section 56(2)(viib) of the Income Tax Act, the provision known as angel tax, was withdrawn in 2024 for issues from assessment year 2025-26 onwards, which removes a long standing risk for domestic rounds. Valuation reports still matter for other reasons, so keep them on file.
• Foreign money. If a non-resident subscribes, the investment has to fit the entry route and pricing guidelines under FEMA, and Form FC-GPR must be filed on the RBI’s FIRMS portal within 30 days of allotment. This deadline is missed more than any other, and regularising it later means a compounding application.

Recognition as a startup by DPIIT is worth doing early. It opens the income tax deduction under Section 80-IAC for eligible companies, self certification under several labour laws, and easier public procurement terms. The incorporation date window has been extended several times by successive Finance Acts, so check the current cut off before assuming you qualify.

Headcount switches on new statutes

Obligations arrive with headcount rather than on any anniversary. Broadly:

• Shops and establishments registration under the applicable state law falls due once you have a place of business.
• Provident fund registration becomes compulsory at twenty employees, and employees state insurance at ten in notified areas, subject to the wage ceiling and state variation.
• An Internal Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 is mandatory at ten employees, counting all workers including interns and contract staff. There is a penalty for not having one, and it is one of the first things a diligence questionnaire asks about.
• Goods and services tax registration is required once turnover crosses the threshold, broadly Rs 40 lakh for goods and Rs 20 lakh for services, and immediately for inter-state supply of goods regardless of turnover.

An employee stock option pool is created by a shareholders resolution under Section 62(1)(b) and a scheme document. Grant letters should fix the exercise price, the vesting schedule, what happens on resignation and on termination for cause, and the exercise window after exit. A vested option with no clear exercise window is a dispute waiting to be filed.

The contracts you will actually litigate

Most early stage disputes turn on three documents: the customer agreement, the vendor or agency agreement, and the separation terms for a co-founder or employee. Get the dull clauses right in each. Payment terms with a due date and interest, a limitation of liability, a termination notice period, a governing law and forum clause, and confidentiality that survives termination.

Note the clock. A suit on a written contract must be filed within three years of the cause of action under the Limitation Act 1963, and for unpaid invoices that generally runs from the date payment fell due, not from your last reminder. A written acknowledgement of the debt before the period expires restarts it, so an email from the customer’s finance team confirming the outstanding amount is worth keeping.

Data is a statutory subject now as well. The Digital Personal Data Protection Act 2023 requires notice, a lawful basis for processing, security safeguards and breach reporting, and its obligations are being brought into force in stages. If you hold personal data of Indian users, the privacy policy and consent flow should reflect that Act, not a template written for another country.

Where founders most often come to us late

We advise early stage companies on incorporation, founder arrangements, funding documents and commercial contracts as part of our corporate and commercial practice. The pattern we see most is not ignorance of the rules but sequencing. Founders fix the shareholding when the round is already in term sheet, assign IP when diligence flags it, and read the dispute clause after the dispute. Each of those is three times the work under time pressure, and some of it cannot be fixed at all.

No startup legal checklist India throws up will fit every business, but the items above catch most of what actually goes wrong in year one. If you are setting up now, or preparing for a first round and want the paperwork checked before an investor’s counsel does, get in touch through our contact page with your incorporation documents and cap table.

This article is general information about Indian company law and not legal advice on any particular matter. Thresholds, forms and due dates change, and the right answer for your company depends on its facts.