Due diligence is and will continue to be an integral part of funding startups,” stated Shark Tank judge Aman Gupta, responding to criticism around delays in startup funding. As India’s startup ecosystem expands rapidly, it has also been marred by instances of fraud, misrepresentation, and inflated valuations. The absence of transparent and thorough financial scrutiny has contributed to the downfall of prominent ventures like GoMechanic, BharatPe, and Zilingo. However, due diligence isn’t just critical for startups—it remains a cornerstone of responsible investing and prudent business decision-making across the board.

The Wirecard scandal stands as a stark reminder of the consequences of inadequate due diligence. Despite being a publicly listed financial services giant, Wirecard managed to fabricate €1.9 billion in supposed bank balances—undetected for years due to auditors and regulators relying on company-provided documents without independent verification. This failure could have been mitigated through rigorous financial and legal due diligence practices, such as direct confirmation from third-party banks, timely investigation of whistleblower reports, and prompt regulatory intervention. A proactive, skeptical approach and external validation mechanisms would likely have exposed discrepancies before the collapse, protecting investors and preserving institutional integrity.

But not just from an investor perspective, it is essential for founders and key individuals at the helm of entities to keep a check on all aspects of their businesses, so they do not run into issues at a later stage. While the support of a corporate lawyer is key to being abreast of all the statutory compliance requirements, a handy list of essential checks for any general corporate transaction can be helpful. Here is a list of items that a corporate lawyer may require when there is a demand for due diligence to be done for any entity.

1. Corporate information:

• Certificate of Incorporation and CIN
• Memorandum and Articles of Association (MOA & AOA)
• Details of amendments to charter documents
• List of current directors and KMPs
• Shareholding pattern (historical and current)
• Minutes of Board, Committee, and Shareholder meetings (last 3 years)
• Group structure/organization chart (including subsidiaries and JVs)
• Statutory registers (Members, Directors, Charges, etc.)

2. Regulatory and Compliance

• Licenses, registrations, and approvals (with validity dates)
• RoC filings
• FEMA/FDI compliance documents
• Industry-specific licenses
• Environmental clearances
• CSR compliance

3. Contracts and Agreements

• List of all material contracts
• Customer/supplier/vendor contracts
• Distribution, franchise, agency agreements
• NDAs, MOUs, LOIs, and term sheets
• Joint venture or partnership agreements
• Licensing, royalty, or technology transfer agreements
• Standard form contracts (sales, purchase, etc.)

4. Litigation and Disputes

• Details of all past and pending litigation/arbitration
• Notices from regulatory bodies
• Claims by or against employees, vendors, customers
• Tax disputes or assessments

5. Employment and HR

• List of employees with designations and tenure
• Standard employment contracts, appointment letters
• ESOP or incentive schemes
• Compliance with labor laws (PF, ESI, gratuity, maternity benefits)
• Details of consultants or contractors
• Disciplinary issues, complaints, or labor litigation

6. Intellectual Property

• List of registered and pending IP (trademarks, patents, copyrights)
• IP license agreements (inbound/outbound)
• Assignments and ownership documentation
• Disputes or infringements, if any
• Domain names and related agreements

7. Real Estate

• Title documents for owned properties
• Lease agreements and leave & license arrangements
• Encumbrance certificates, mutation, property tax receipts
• Approvals from local authorities
• Ongoing disputes on property or leases

8. Finance and Borrowings

• Details of loans, credit facilities, and bank borrowings
• Security documents, mortgages, guarantees
• Charges registered with RoC
• Defaults, if any, under financial agreements
• Investments made by the company
• Details of related party transactions

9. Taxation

• PAN, TAN, and GST registration certificates
• Income tax, TDS, and GST returns (last 3 years)
• Tax audit and statutory audit reports
• Notices from tax authorities
• Pending tax assessments, appeals, or disputes

10. Insurance

• List of insurance policies (property, liability, D&O, etc.)
• Claims filed or pending
• Coverage details and premium payment status

11. IT and Data Protection

• Software licenses and IT vendor contracts
• Cybersecurity policy, data privacy policy
• Compliance with applicable data protection laws (like IT Act, GDPR if applicable)
• Breach incidents or vulnerabilities

While this generic list can come in handy for decision makers to keep their paperwork in order during routine business work, for specific transactions such as asset purchase, share purchase, mergers etc. the support of a corporate lawyer is essential. This is more relevant if there is an involvement of a foreign entity since there are specific nuances of law that must be addressed in such cases. Further, a corporate lawyer or a corporate law firm has a wide range of expertise and can take its experience from one industry to another. Moreover, since they deal withvaried types of transactions, they would be more likely to understand the implications of a particular missed compliance or means to avoid penalties.

Post conducting due diligence, a red flag report can be prepared by a corporate law firm/corporate lawyer highlighting issues that require urgent attention with clear indication of the team responsible and the timeline that they need to be addressed within. Issues may pertain to corporate structure, contracts, employment, regulatory compliance and so on and so forth. They can range from MOA not being aligned with the actual business activities to key clauses missing in vendor contracts. Possible impacts and recommended actions are also discussed to mitigate the risks.Corporate lawyers/corporate law firms also provide an idea on the category of risk based on how materially they may affect the transaction or create a liability i.e., high, medium or low. This could bring out deal breaker issues which need to be addressed from the start and save a lot of time and efforts of the parties involved.