What Every Founder Should Know About Compliance?

This guide breaks down the compliance basics every founder in India should know, especially in the early stages.

When you're in the early stages of building a startup, compliance often feels like that boring cousin at a wedding, necessary, but easy to ignore. You’re chasing product-market fit, hiring your first team, pitching to investors, and pulling late nights to ship faster than the competition. In that chaos, legal and regulatory paperwork seems like a problem for “later.”

But here’s the thing: From company formation and tax filings to ESOPs, contracts, and fundraising documentation, every small act of compliance is a layer of armour around your startup. It builds trust with investors, your team, partners, and even future acquirers.

This guide breaks down the essentials across taxation, labour laws, corporate governance, fundraising rules, and more.

​​What Is Compliance in a Startup Context?

Compliance means aligning your business with the legal, regulatory, and governance standards applicable to your industry, location, and growth stage.

For Indian startups, this includes:

• Government-mandated filings and disclosures (ROC, GST, ITR, etc.)

• Tax and payroll compliance (TDS, PF, ESI)

• Corporate governance (Board meetings, shareholder resolutions)

• Employment laws (contracts, benefits, terminations)

• Intellectual property and data privacy

• Fundraising rules under FEMA (for foreign investors)

• Sector-specific licenses (especially for fintech, edtech, and healthcare)

1. Company-Level Compliance (MCA/ROC Requirements)

Most founders sigh in relief after getting their Certificate of Incorporation. However, what follows is often overlooked: a series of legal and compliance tasks that must be done yearly, not just during fundraising.

Key Requirements:

• Annual filings:

  • Form AOC-4: Filing of financial statements (due 30 days from AGM)

  • Form MGT-7: Annual return (due 60 days from AGM)

• Board Meetings: At least 4 per year (once every quarter)

• Statutory Registers: Shareholder register, minutes, resolutions

• Director Disclosures: Form MBP-1 (interests), DIR-8 (disqualification)

Non-filing leads to daily penalties (₹100/day/form). Missing documentation can delay fundraising or acquisitions. Even a clean startup can look risky on paper if its records are a mess.

2. Taxation & GST Compliance

Let’s be honest- no one starts a company because they’re excited about taxes. But once the invoices start rolling in and you’re dealing with clients, vendors, and maybe even some revenue, taxes quickly become part of the founder's to-do list.

Startups in India are subject to both direct and indirect taxes.

Direct Tax (Income Tax)

• PAN & TAN: Mandatory for all entities

• TDS: Deduct tax at source (usually 10%) when paying contractors, consultants, rent, etc.

• Quarterly TDS returns: Filed via Forms 24Q/26Q

• Corporate Income Tax Return (ITR-6): Due by Oct 31st each year (if audited)

Indirect Tax (GST)

GST registration is required if:

• Annual turnover exceeds ₹40 lakh (goods) or ₹20 lakh (services)

• You sell across states or online

File monthly returns (GSTR-1 and GSTR-3B), even if you have no transactions.

3. Labour Law & Employment Compliance

Many founders often discover these later, from offer letters and PF registrations to leave policies, maternity benefits, and workplace safety. And no, it’s not just “big companies” that need to worry about this. Even with a small team, missing out on basic compliances can lead to penalties or legal trouble down the line.

Employment Contracts

Every hire- whether employee, intern, or contractor- should have a written agreement covering role, salary, confidentiality, IP, and exit terms. Verbal agreements create future risks around ownership and benefits.

PF, ESI & Gratuity

• Provident Fund (PF): Mandatory if you have 20+ employees earning below ₹15,000/month.

• Employee State Insurance (ESI): Mandatory if 10+ employees earn below ₹21,000/month.

• Gratuity becomes applicable after 5 years of service, but registration is required if you have 10+ employees.

Payroll Compliance

It comes with a whole checklist of responsibilities: calculating deductions, issuing payslips, and filing the right returns on time. Use proper tools or service providers to:

• Generate payslips

• Deduct and pay TDS

• File monthly EPFO/ESI returns

4. Fundraising & Governance Compliance

The moment an investor wires money into your company, governance becomes real. From maintaining your cap table and issuing share certificates to filing the right forms with the MCA (like SH-7 or PAS-3), there are rules to follow and missing them can cause serious delays or red flags in future rounds.

Cap Table & Share Issuance

Maintain a clean and updated cap table with proper:

• Share certificates (issued within 60 days)

• ROC filings for every allotment (Form SH-7)

• Board and shareholder resolutions for ESOPs, notes, or new shares

Foreign Investments (FDI)

If you raise funds from a foreign investor:

• Report the FDI using Form FC-GPR within 30 days of allotment

• Comply with FEMA guidelines

• Get a FIRC (Foreign Inward Remittance Certificate) from the bank for each foreign transfer

• Open a separate FDI bank account

Valuation Reports & ESOP Schemes

• Get a CA-certified valuation for issuing shares or granting ESOPs

• Formally adopt and file your ESOP scheme with the ROC

• Keep key documents handy, like Grant Letters, Form PAS-3, etc.

Fundraising is where most compliance problems are exposed. Investors will check every legal and financial document. Delays, errors, or undocumented equity promises can scare off otherwise interested VCs.

5. Contracts, IP & Data Protection

Contracts & NDAs

• Use proper MSAs, NDAs, and contractor agreements

• Protect IP created by freelancers or employees through IP assignment clauses

• Have proper documentation around payment terms, liability, and dispute resolution

Intellectual Property (IP)

• Register your trademark as early as possible (brand name, logo, app name)

• File for patents & copyrights

• Keep documentation for open-source licenses or third-party software usage

Data Privacy & Website Policies

• Add a Privacy Policy and Terms of Use to your website

• Comply with the upcoming Digital Personal Data Protection (DPDP) Act

• Protect data via encryption and access controls

• Clearly mention how you collect, store, and use customer data

These are often ignored until a customer complains, a competitor files a trademark, or your code is challenged during an acquisition. Early-stage mistakes can lead to costly legal battles later.

Compliance Calendar for Founders

Final Thoughts

As a founder, you don’t have to become a lawyer or a CA. But you do need to know enough to ask the right questions, flag the red flags, and not blindly say “we’ll deal with it later.”

Even the boldest ideas can stumble because of the smallest slip-ups- missed filings, non-compliant employee contracts, ignored tax deadlines. Compliance might feel like overhead, but it's actually a sign of operational maturity. It allows you to raise faster, close big clients, hire top talent, and scale confidently. Because- “If product is king, compliance is the crown that keeps it from falling off.”

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Disclaimer: The information provided in this article is for general guidance and educational purposes only. It is not intended to serve as legal, tax, or financial advice. Compliance requirements may vary based on your company’s structure, industry, and stage of growth.

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