Investors now conduct financial due diligence before term sheets — not after. An Indian startup at Series A that cannot present clean, audited accounts risks losing the deal, triggering valuation haircuts, or facing conditions precedent that delay closing by months. This checklist covers what your startup must have in place before a Series A investor comes knocking.
Why audit readiness matters at Series A
At Seed stage, investors largely accept unaudited management accounts. At Series A — typically INR 10—80 crore raises from institutional investors — the bar is higher. Investors will run financial due diligence, and their chartered accountants will look for:
- Audited financial statements for the last 2—3 financial years
- Clean audit opinion — not qualified or adverse
- Properly maintained statutory records under the Companies Act
- Clean cap table and ESOP register with proper documentation
- All past MCA filings (AOC-4, MGT-7, DIR-3 KYC) current and unpenalised
- DPIIT startup recognition in place (for 80-IAC tax exemption)
The most common Series A delay we see is not legal due diligence — it is the startup scrambling to get 2 years of books in order 3 weeks before the closing call. Start now.
The 12-item pre-Series A audit readiness checklist
01 — Audited financials for FY-2, FY-1, and FY-0
Engage a CA and get at least 2 years of accounts formally audited. If you have been operating for less than 2 years, 1 full year plus a management-reviewed set for the partial year is the minimum.
02 — Clean audit opinion
A qualified opinion (emphasis of matter or adverse findings) creates a disclosure obligation in the shareholder agreement and may affect valuation. Resolve the underlying issues before the audit — not after.
03 — MCA annual filings current
AOC-4 (financials) and MGT-7 (annual return) must be filed for all financial years since incorporation. Unfiled returns attract late fees and legal notices — these will surface in investor due diligence.
04 — Statutory registers maintained
Register of Members, Register of Directors & KMP, Register of Charges, Minutes Book of Board and General Meetings — all must be up to date under Section 88 of the Companies Act.
05 — Cap table clean and documented
Every allotment must have a board resolution, valuation report (where required), Form PAS-3 filed, and share certificates issued. ESOP grants must have board and shareholder approval and a scheme registered with ESOP administrators.
06 — FEMA/RBI compliance for foreign investment
If you have received foreign investment (Seed or otherwise), all FEMA filings must be complete — Form FC-GPR within 30 days of allotment, Form FC-TRS on transfer, and FEMA annual return (FLA return by July 15 each year).
07 — TDS compliance current
All TDS returns (Form 26Q, 24Q) filed, TDS paid on time, and Form 16/16A issued to employees and vendors. Outstanding TDS defaults trigger interest and penalties — and show up in tax due diligence.
08 — GST registration and returns current
If turnover exceeds GST registration threshold (INR 20 lakh for services, INR 40 lakh for goods), GSTR-1 and GSTR-3B must be filed monthly/quarterly with no pending defaults.
09 — PF and ESI compliance
EPFO registration (once 20 employees), monthly ECR filings, and ESIC compliance (once 10 employees in applicable states). Arrears in PF and ESI are a common due diligence red flag.
10 — Intellectual property secured
All IP developed by founders and employees must be assigned to the company. Trademark applications filed at the Indian IP Office. If you have patents or proprietary code, ensure IP assignment agreements are in place for all contributors.
11 — DPIIT startup recognition and 80-IAC
DPIIT recognition is a simple online process and unlocks startup-specific benefits including 80-IAC income tax exemption (3 consecutive years out of first 10). Apply before you raise — investors value the tax benefit in the financial model.
12 — Director KYC and DIR-3 filings current
All directors must have filed DIR-3 KYC annually. Directors with DIN-deactivated status create compliance issues and a flag in due diligence. Verify all DINs are active before you enter any fundraising process.
What happens when due diligence finds gaps
If due diligence uncovers compliance gaps, investors typically respond in one of three ways:
- Valuation adjustment — the gap is quantified (e.g., TDS arrears + interest + penalty) and deducted from valuation
- Condition precedent — the closing is conditioned on the startup regularising the compliance before funds are released (adds time and cost)
- Deal termination — for material misstatements or unfiled annual returns, some institutional investors walk away entirely
DeccanBridge guidance
Our assurance and legal teams offer a structured Series A readiness audit — reviewing your accounts, MCA filings, cap table, tax compliance, and FEMA position against the 12-item checklist. We identify gaps and prepare remediation plans 3—6 months before you enter the fundraising process.
Hyderabad HQ: +91 94922 01497 · connect@deccanbridge.com