Investor's Compliance Checklist

Raising capital is a major function for any business and equity funding has gained tremendous popularity over the last decade owing to the success of ecommerce companies like Flipkart, Snapdeal, In-Mobi and more. The increased interest in startups has led to the development of a strong angel investor community, venture capital investors and private equity firms. All equity investors prior to making an investment conduct an investment due-diligence of the target company on a wide variety of areas. In this article, we look at an Investor's compliance checklist, designed to make sure the investee is compliant with relevant rules and regulations.

Business Entity

Equity investment requires issuance of shares of the company to the investor in return for equity / shares. Only private limited company or limited company is capable of supporting such a transaction. Hence, the first step in the fund raise process should be to incorporate a company, if not already done. During incorporation, it is important to ensure that the Memorandum of Association and Articles of Association of the Company are drafted to handle an equity investment without any amendments to the MOA or AOA.

ROC Compliance

The company must maintain a statutory register and should have complied with all the provisions of the Companies Act, 2013. Some of the main compliances post incorporation of a company are appointment of Auditor, conducting of board meetings, filing of statutory annual returns and maintenance of statutory register. During the investment due-diligence the above areas pertaining to ROC compliance will be verified.

Tax Compliance

Tax compliance for a business would vary depending on the nature of business and state of operation. Businesses involved in selling goods or products would have to comply with state VAT regulations, including VAT registration, VAT payments and filing of VAT returns. Businesses involved in providing services would have to obtain service tax registration, make service tax payments and file service tax returns.

In addition to service tax or VAT regulations, income tax compliance would also be checked. TDS payments and TDS return filing would be checked to ensure that the business complied with the relevant Income Tax rules and regulations.

Labour Law Compliance

If the investee company has an employee workforce of over 20, the business would have to comply with ESI and PF regulations. Hence, ESI registration documents, ESI return filing, PF return filing, ESI payments and PF payments would be checked. If the company is involved in the development of intellectual property, then due-diligence will also be performed to ensure that the business has the necessary employee non-disclosure agreements in place.

Intellectual Property

Intellectual property is one of the biggest asset of a technology based company. Hence, investors will ensure that relevant intellectual property of the company like trademark, copyright, patent and design are protected with a trademark registration or copyright registration or patent registration. Even if the registration certificate is not issued, investors will want to see proof for filing of application for trademark or copyright or patent.

Company Registration

OPC Registration