Due Diligence on Startup companies

Corporate and Regulatory service

Due Delligence for Start Up Companies

Startup means an entity, incorporated or registered in India:

  • Upto a period of 7 years from the date of incorporation/registration or upto 10 years in case of Startups in Biotechnology sector.
  • As a private limited company or registered as a partnership firm or a LLP
  • Annual turnover not exceeding Rs. 25 crore for any of the FY since incorporation
  • Working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

It’s important to remember the reasons why to invest in startup companies:

  • To bring experience and network to bear so that an active role in helping the company grow and succeed.
  • To take a calculated risk to help a team of founders we believe in to achieve something cool.
  • To make a good return on our investment.

The Startup means the opportunity for all those things but, naturally, the risk is larger.

Features of startups:

  • No past history, operations have not reached the stage of commercial production.
  • No or negligible revenue with operational losses.
  • Limited promoter’s capital infused and high dependence on external funds.
  • Illiquid investments.



  • Meaning Of Due Diligence



Due Diligence is the process by which confidential legal, financial and other material information is exchanged, reviewed and appraised by the parties to a business transaction, before entering in to the transaction with the other party.Due diligence is an analysis and risk assessment of an impending business transaction, Due diligence is basically a background check to make sure that the parties to the transaction have the required information they need, to proceed with the transaction.


The main areas Of Startup Due Diligence are:


  • Team & Management

  • The Business

  • The Technology/Product (if applicable)

  • The Market



Market research is the process of finding out information about demand, trends, size and competition in the target market.




  • Types Of Due Diligence




  • Business Due Diligence:


It involves:-

  1. Operational due diligence
  2. Strategic due diligence
  3. Technical due diligence
  4. Environmental due diligence
  5. Human resource due diligence
  6. Information security due diligence
  7. Ethical due diligence



  • Legal Due diligence (Including Secretarial due diligence)
  • Financial Due Diligence (Including tax due diligence)




  • Documents Required Start Up Company Due Diligence



  • MOA & AOA
  • Certificate of Incorporation
  • Shareholding Pattern
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Tax Registration Certificates
  • Tax Payment Receipts
  • Statutory Registers
  • Property Documents
  • IPR Registration or Application Documents
  • Utility Bills
  • Employee Records
  • Operational Records



  • Review Of MCA Documents


Most of the due diligence of a company start with the Ministry of Corporate Affairs. On the Ministry of Corporate Affairs website, the master data about a company is made publicly available. The documents and information gathered in this step include:

Company Information

    • Date of Incorporation
    • Authorised Capital
    • Paid up Capital
    • Date of Last Annual General Meeting
    • Date of Last Balance Sheet
    • Status of the Company
  • Director Information
    • Directors of the Company
    • Date of Appointment of Directors
  • Charges Registered
    • Details of Secured Lenders of the Company
    • Quantum of Secured Loans
  • Documents
    • Certificate of Incorporation
    • Memorandum of Association
    • Articles of Association

In addition to the above, the financial information of the company and other filings with the MCA pertaining to various aspects of the company can be downloaded and reviewed. The review of MCA documents of the company would provide a good overview of the company to the person performing the due diligence.