How to Raise a Seed Round in India: Legal and Compliance Checklist

Before the term sheet

Investors will check that the company's house is in order. Clean up pending ROC filings, issue share certificates that were never issued, regularise any founder vesting, and assign all IP from founders and early contractors to the company. Make sure every founder has signed an employment or services agreement with confidentiality and invention assignment clauses.

• ROC filings (AOC-4, MGT-7/7A, DIR-12, PAS-3) up to date
• Register of members and share certificates in order
• IP assignment deeds from founders and freelancers
• Trademark applications for the brand
• GST, TDS and payroll compliance current
• Cap table reconciled with MCA records

Transaction documents

The term sheet sets valuation, instrument, investor rights and conditions. The share subscription agreement covers the investment amount, conditions precedent, representations and warranties. The shareholders' agreement covers board seats, information rights, anti-dilution, liquidation preference, transfer restrictions, founder lock-in and vesting. The key investor rights then need to be written into the AoA, because Indian courts give primacy to the articles.

Corporate approvals and filings

Most seed rounds use compulsorily convertible preference shares (CCPS) or equity. If the company has only equity in its capital clause, amend the MoA to add preference capital and increase authorised capital by filing SH-7. Adopt new AoA by special resolution and file MGT-14 within 30 days. The private placement then follows section 42: special resolution, PAS-4 offer letter, separate bank account, allotment within 60 days and PAS-3 within 15 days.

Valuation and tax

Company law requires a registered valuer's report for a private placement. Foreign investment must be priced at or above fair value determined by a chartered accountant or SEBI-registered merchant banker using an internationally accepted method. The angel tax provision that taxed premium above fair value on issues to resident investors was abolished with effect from assessment year 2025-26, so it no longer applies to current rounds.

Post-closing checklist

After money arrives and shares are allotted, close out the paperwork promptly. Investors usually list these items as conditions subsequent with a deadline, and missing them can be a breach of the agreement.

• Issue share certificates or credit demat accounts
• Update register of members and file PAS-3
• File FC-GPR on RBI FIRMS for non-resident investors
• Appoint investor nominee director and file DIR-12
• Update significant beneficial owner filings if thresholds are crossed
• Set up board meeting calendar and information reporting

Timeline for a typical seed round

Allow six to ten weeks from term sheet to money in the bank for a straightforward round, longer if diligence uncovers gaps. Board and shareholder meetings can be held at shorter notice with the consents the Act permits, which helps compress the closing week.

Common mistakes

Founders often accept money before passing the special resolution, mix funds into the operating account, or let investor rights live only in the SHA without amending the AoA. Missing the FC-GPR deadline brings late submission fees. Convertible notes are available only to DPIIT-recognised startups for amounts of ₹25 lakh or more in a single tranche.

Step by step

1. 1Clean up compliance

   Bring ROC, tax and IP records up to date.

2. 2Sign term sheet

   Agree valuation, instrument and key rights.

3. 3Due diligence

   Share documents in a data room and fix gaps.

4. 4Execute SSA and SHA

   Sign transaction documents and agree conditions precedent.

5. 5Amend charter

   Increase authorised capital (SH-7) and adopt new AoA (MGT-14).

6. 6Private placement

   Pass special resolution, issue PAS-4, receive funds in separate account.

7. 7Allot and file

   Allot shares and file PAS-3 within 15 days.

8. 8Report FDI

   File FC-GPR within 30 days for foreign investors.