Due diligence is an investigation or audit performed before an acquisition, investment, business partnership, or bank loan, for example, to ensure compliance with financial, legal, and environmental reports in order to validate the business. A Due Diligence report will summarise all such investigations and audit results. Company due diligence for startups is especially important during the funding round. We have compiled the Company Due Diligence for Startups in India that must be followed to ensure compliance.
A company’s due diligence is typically performed prior to a business sale, private equity investment, bank loan funding, and so on. During the due diligence process, the company’s financial, legal, and compliance aspects are typically reviewed and documented.
A business due diligence is typically performed prior to the acquirer’s or investor’s purchase of a company or investment in a company. The seller of the business or shares is responsible for providing the buyer with the documents and information needed to perform due diligence on the company.
Due diligence assists the buyer in making an informed investment decision and mitigating the risks associated with a business acquisition transaction. Prior to beginning a business due diligence, both parties usually enter into a non-disclosure agreement because sensitive financial, operational, legal, and regulatory information will be disclosed to the buyer during the due diligence process.
Tax filing due diligence
Taxation aspects of a company must be thoroughly examined during the due diligence process to ensure that no unforeseen tax liabilities are imposed on the company at a later date. The following aspects of a company’s taxation must be investigated:
Legal Compliances
This is done to assess the legal and regulatory risks of the company. Legal compliance is frequently the most difficult and time-consuming task. The majority of this is due to Ministry of Corporate Affairs compliance. It entails the investigation of:
Operational Aspects
During the due diligence process, it is critical to gain a thorough understanding of the business model, business operations, and operational information. The operational aspects must be thoroughly reviewed, including site visits and employee interviews. The following items must be covered and documented during the operational aspects review:
Accounting compliance for Startups
The Companies Act of 2013 requires all companies to keep a book of accounts and detailed transaction information. As a result, detailed financial transaction information must be audited and verified against the company’s financial statements. Among the issues to consider during the business financial due diligence process are:
HR (Human Resource) due diligence
Understanding the country’s system of employment contracts, labor laws, labor relations, regulatory policies, work culture, and industry standards is part of HR due diligence. In monetary terms, the workforce, or the human side of an organization, has both cost and value.
This article covers the fundamental requirements for Indian startups. Companies, startups, and other business structures must bind themselves to MCA compliance requirements to save themselves from any legal consequences. Startups are not only bound to the legal compliances that is mentioned above, there are certain event based legalities that must be filed by Startups.
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