A legal checklist for Indian startups

24 August 20269 min readStartups

What follows is organised by the moment at which each item starts to matter, rather than as one long list. That ordering is deliberate: the most common mistake I see is not that founders skip legal work, but that they do it in the wrong order — elaborate policies in month two, no founders' agreement in year two.

Before you register anything

Settle the founder conversation first

Who owns what, who is full-time, what happens if someone leaves, and who decides when two people disagree. These are business questions, not legal ones, and no document can resolve them for you. But they must be settled before the entity is created, because afterwards every one of them becomes a negotiation with someone who already holds shares.

Run a trade mark search on the name

Before the domain, before the logo, before the signage. A search against the register of trade marks will show whether the name you have chosen is already registered, or applied for, in the classes that matter to you. It costs a fraction of what a rebrand costs, and I have seen more than one business change its name in year three after a cease-and-desist notice arrived.

Choose the structure

For most businesses intending to raise external capital the answer is a private limited company, because that is the vehicle investors understand and the one that can issue equity cleanly. A limited liability partnership is lighter to run and can suit a professional services business or a bootstrapped venture with no plans to raise. A sole proprietorship or a partnership is fastest to start and worst on liability, since the obligations of the business remain personal obligations of the people running it.

At incorporation

Get the articles right, not just filed

The articles of association are usually treated as a formality and adopted in standard form. They should not be. In a private company, restrictions on the transfer of shares — rights of first refusal, tag-along and drag-along rights, transfer restrictions on departing founders — are generally enforced where they are incorporated in the articles. Left only in a shareholders' agreement sitting outside them, they may still bind the signatories as a matter of contract, but they are materially weaker against the company and against a transferee.

If you take one thing from this guide: whatever the founders agree between themselves about shares should be reflected in the articles, not merely in an agreement kept in a drawer.

Sign a founders' agreement, with vesting

Roles, contributions, decision-making, confidentiality, intellectual property, and — above all — vesting. This is the single highest-value document an early-stage company signs, and it is dealt with separately in its own guide.

Open the bank account and keep the money separate

Routing company receipts through a founder's personal account is common, understandable, and a genuine problem. It complicates the accounts, undermines the separation between the company and its shareholders, and is tedious to unwind at diligence.

Register where registration is cheap and useful

• Udyam (MSME) registration — free, quick, and relevant to certain payment-protection provisions and scheme eligibility.
• DPIIT startup recognition — where the company qualifies, this opens access to concessional trade mark and patent facilitation, self-certification under a set of labour and environment statutes, and eligibility to apply for the income-tax exemption under Section 80-IAC, which is a separate application with its own conditions.
• Shops and establishments registration — a state-level requirement that applies to most commercial premises.

Before the first customer

One standard contract, used consistently

Not a bespoke document for each engagement. One base contract that covers scope, deliverables, payment terms, what happens on late payment, liability, confidentiality, ownership of what is produced, term and termination, and how a dispute is to be resolved.

A purchase order and an email thread will often amount to a contract in law. The difficulty is that it will be a contract on terms nobody chose, and usually with nothing useful to say about the two things that actually go wrong: payment and scope.

Look hard at the dispute-resolution clause

If the contract carries an arbitration clause, it should name a seat and contain a mechanism for appointing the arbitrator that can actually be operated. A defective arbitration clause produces a preliminary round of litigation about the clause itself before anyone reaches the dispute. It is also worth knowing that a commercial suit which does not contemplate urgent interim relief must ordinarily go through pre-institution mediation under Section 12A of the Commercial Courts Act, 2015 before it can be instituted — a requirement the Supreme Court has held to be mandatory.

Register for tax where you are required to

GST registration is generally required once aggregate turnover crosses the applicable threshold — broadly ₹20 lakh for services and ₹40 lakh for goods in most states, with lower thresholds in the special category states — and is compulsory in certain cases regardless of turnover, including inter-state supply of goods and supplies made through an e-commerce operator. Thresholds and exceptions change; check the current position rather than relying on a figure in an article.

Before the first hire

Everyone signs something

Employees, consultants, interns, the friend building the first version of the product. Every engagement should be in writing, and every engagement document should deal with confidentiality and with ownership of what is created.

Assign the intellectual property expressly

Paying an independent contractor does not, by itself, transfer copyright in what they produce. Without an express written assignment, a company can find that it does not own its own codebase, its designs or its brand assets. This is among the most common and most expensive findings at diligence, and it is almost always avoidable with a clause.

Be careful with non-competes

Section 27 of the Indian Contract Act, 1872 makes an agreement in restraint of trade void, and Indian courts have generally declined to enforce non-compete covenants that operate after employment ends. Confidentiality obligations, non-solicitation of clients and staff, and protection of trade secrets stand on a different footing and are the more workable route. A contract full of clauses that will not be enforced is not protection; it is the appearance of protection.

Know which thresholds you are approaching

Several statutory obligations are triggered by headcount rather than by revenue or age. Broadly:

Treat this table as an orientation, not as advice. Applicability turns on the nature of the establishment, the state, the wages paid and the manner in which people are engaged — and the position under the labour codes continues to develop.

Classify honestly

If someone works fixed hours, under your direction, exclusively for you, using your systems, they may well be an employee whatever the contract calls them. The label is not decisive, and the consequences of getting it wrong accumulate quietly. The classification question has its own guide.

Once you hold data about people

Which, for most businesses, is from the first sign-up. The Digital Personal Data Protection Act, 2023 applies regardless of size, and the first step is always the same: know what personal data you collect, why, where it sits and who else touches it. A notice and a recorded basis for processing follow from that inventory, not the other way round. More on the DPDP Act for founders.

Before you raise

A funding round does not create new legal problems so much as discover the existing ones, at the worst possible moment for your leverage. What diligence reliably finds:

• Founders holding shares with no vesting, including founders who left.
• Intellectual property owned by contractors, agencies or a founder personally.
• Domains, repositories and cloud accounts registered in personal names.
• Statutory registers and minutes reconstructed from memory, and overdue annual filings.
• Customer contracts that were never signed, or signed on the customer's paper without anyone reading it.
• Consultants who look, on the facts, like employees.

Every one of these is cheap to fix at the beginning and expensive to fix against a closing deadline. If a round is likely within a year, this list is the one to work through.

If foreign investment is in prospect, the position under the foreign exchange regime needs to be considered separately and early, including sectoral conditions, pricing and reporting requirements.

What can wait

Founders are sold a great deal of compliance they do not yet need. In my experience the following can usually wait until there is a reason for them:

• An employee handbook, before there are employees.
• An elaborate ESOP scheme, before there is anyone to grant options to.
• Trade mark filings in classes you do not trade in, and in countries you do not sell to.
• Copyright registration for material that is already protected by copyright on creation; registration is useful evidence, not the source of the right.
• A fifty-page terms of service for a product with no users.
• Board committees and policies that a company of your size is not required to have.

The distinction I would draw is this: put in place early anything that is hard to fix retrospectively — ownership, equity, assignment of intellectual property — and defer anything that can be added when the need arrives.

A note on cost

Good early-stage legal work is not expensive relative to what it prevents, but it is easy to spend money on the wrong things. If the budget is limited, I would spend it in this order: founders' agreement and articles first; one standard customer contract second; intellectual property assignment in engagement documents third; trade mark search and filing fourth. Everything else can follow the business.