Due Diligence Before an IPO or Takeover of the company

Due Diligence Before an IPO or Takeover of the company . Preparing for an IPO/SME IPO or a change of control is not just about great numbers but it’s about evidencing discipline, traceability, and compliance across the entire company. Below is a practitioner-grade guide you can use as a working blueprint. It blends legal/secretarial, RBI/NBFC, tax, contracts, people, and operational workstreams and folds in the precise Companies Act, FEMA/RBI, EPFO/ESI and allied requirements you listed.
Corporate, Legal & Secretarial Diligence
Constitution, governance & cap table
Confirm that the company is properly constituted and governed in line with the Companies Act, 2013.

Board & KMPs. At least two directors for a private company, with one resident in India; KMPs apply only when paid-up capital is Rs.10 crore or more. Verify appointment/cessation filings (DIR-12), residency proofs, D&O disclosures, and registers.

Shareholding pattern. Minimum two members and not more than 200 (ex-employees excluded). Reconcile the cap table with past PAS-3 filings, transfer deeds, share certificates, Rule 9A/9B dematerialisation status, and BEN-1/BEN-2 trails for Significant Beneficial Owners.

MOA/AOA hygiene. Ensure that objects and restriction clauses match the business model and funding plan. Past alterations must track Section 13 (MOA-INC-33) and Section 14 (AOA-INC-34), with special resolutions and approvals (ROC/RD/NCLT as applicable).

Registers, minutes & filings. Verify complete statutory registers; confirm Section 118/SS-1/SS-2 compliance for Board/General meeting notices, quorum, and signed minutes. Cross-check annual filings AOC-4/MGT-7 or 7A, ADT-1, DIR-3 KYC, INC-22, etc., for timeliness and consistency.

Charges. Track creation, modification, and satisfaction (CHG-1/CHG-9/CHG-4). Unregistered or un-satisfied charges are classic red flags and can stall bank consents and listing approvals.

Related party & loans. Must check the Section 188 approvals/disclosures; map Section 185 exposures and private company exemption conditions; and check Section 186 limits, approvals, and disclosures for all loans/guarantees/investments.

Securities issued. For any rights/private placements, verify Sections 42/62 process, pricing, offer letters, money trail, utilisation of proceeds, and ROC filings within time (PAS-3).

Dividend, IEPF, defaults. Review dividend workings, timelines, and transfers to IEPF for unclaimed shares or dividends items; scan RBI/ECGC defaulter and watch lists if relevant.

Litigation, notices & compounding. Chronicle open/closed prosecutions, show-cause notices, adjudication orders, and compounding status. Clean closures materially de-risk an IPO or buyer’s CP (condition precedent) grid.

FEMA & RBI Workstream (for NBFCs/Investment Cos.)
If you are an NBFC (including an investment NBFC), buyers and the IPO ecosystem will focus on SBR alignment and prudential discipline.

NOF roadmap. Evidence Net Owned Funds of ≥ Rs.5 crore today and a credible plan to meet Rs.10 crore by 31 March 2027 under SBR.

Prudential/IRACP. Confirm income recognition, asset classification and provisioning policies and their application across portfolios (even if currently investment-only).

Return stack. DNBS-02, DNBS-13 (quarterly), DNBS-10 (annually) on time, every time with proof of submissions and query closures.

CIC/CKYCR/FIU-IND/NeSL. Memberships, data pipelines, and compliance logs (CTR/STR filings, KYC uploads within 10 days of relationship opening, NeSL filings for security interests).

Policy suite & website. Annual Board adoption and RBI intimation of Fair Practices Code, Interest Rate, KYC/AML, Investment, Grievance Redressal, and Credit policies. Policies must align with actual practice and digital disclosures.

Deposits stance. Board resolution each year confirming “no public deposits,” unless deposit-taking permission exists; leverage ratio ≤ 7 (as applicable).

Borrowings & Section 180. Track shareholder approvals for borrowing limits and lender consents, including change-of-control provisions.

For change of control: NBFCs typically need prior RBI approval under FEMA for transfer of ownership/control and this becomes a CP for closing. Build timeline buffers accordingly.
FEMA, Forex & FDI/ODI

Borrowings/guarantees. Align Board powers (Section 179) and special resolutions (Section 180) with FEMA and ECB norms; collect lender consents for IPO/M&A triggers.

FDI/ODI history. Reconcile FC-GPR/FC-TRS, ODI forms, pricing certificates, and bank FIRC/ARF evidence; test Press Note 3 cases (beneficial ownership from land border countries).

Utilisation & end-use. Validate the use of foreign funds against affidavit/DRHP disclosures and loan covenants.

Tax, Audit & Ind AS Readiness

Audit track. Ensure auditor appointments (ADT-1) and independence; compile management letters and ensure remediation. Catalogue qualifications, EoMs, and CARO remarks with corrective evidence.

Income tax & GST. Perfect ITRs, tax audit (as applicable), reconciliations (GSTR-1/3B/2B vs books), and ledgers for refunds/reversals. TDS/TCS mapping to payments and 26AS/TRACES.

Pre-IPO Ind AS & restatements. IPOs require restated financials (typically three years) under Ind AS with peer review. Start technical memos early (revenue, leases, financial instruments, ESOP fair value, business combinations).

Employment, Labour & People Systems

Contracts & founders. Put formal employment/engagement letters in place for promoters/KMPs; align non-compete/confidentiality/IP assignment.

ESI/EPF/Gratuity/PoSH. Test coverage triggers (EPF ≥20, ESI salary thresholds, MB Act, Gratuity registrations), returns, challans, and establishment codes. Ensure PoSH ICC constitution, policy, training, and annual reporting including registration on SheBox: https://shebox.wcd.gov.in/

Equity plans. For IPO-bound issuers, stabilise ESOP policy, shareholder approvals, SAR/phantom terms, valuation workings, and accounting.

Commercials, IP, and Operations

Material contracts. Build a contract register with counterparties, value, term, termination, assignment/change-of-control, exclusivity, indemnities, and IP clauses. Obtain counterpart consents where needed.

IP portfolio. Verify ownership of trademarks, copyrights, patents, domain names, and licenses; file missing assignments and correct proprietor details. Match IP to brands in the DRHP/business plan.

Licenses & sector approvals. List all registrations (Shops & Establishments, PSI, local trade, industry-specific), renewal calendars, and breaches cured.

Insurance. Inventory asset, marine, business interruption, D&O, and cyber covers; confirm sums insured and warranties match risk profile.

Financial Controls, Data & Tech

ICFR & SOPs. Document procure-to-pay, order-to-cash, treasury, payroll, and IT general controls. Evidence maker-checker, role-based access, and audit logs.

Data compliance. Map personal data flows, consents, cross-border transfers, and vendor DPAs; get ready for customer and investor questionnaires on privacy and cybersecurity.

IPO-Specific Readiness Add-Ons

Corporate governance uplift. Recruit independent directors, constitute Audit/ NRC/ Stakeholders committees, and adopt charters in line with ICDR/LODR (if listing on the main board later).

Banker, registrar & demat. Ensure end-to-end dematerialisation of pre-IPO share capital; clean up odd lots, lost certificates, and name/address mismatches now.

DRHP pack. Build a disclosure data room: restated financials; MD&A; risk factors; litigation summaries; RPT tables; promoter group and SBO proofs; capital history; use of proceeds; ESOP overhang; government/statutory approvals.

House-keeping. Close all small non-compliances (overdue forms, minor stamp duty gaps, stray RPT approvals). These are low-cost to fix and high-impact in diligence.

Takeover/M&A-Specific Add-Ons

Deal perimeter & structure. Asset vs share sale, slump sale vs merger, or share swap and carry valuation of shares trails and fairness opinions (409A/Rule 11UA, Companies Act, FEMA pricing).

Change-of-control approvals. Sector approvals (RBI for NBFCs, IRDAI/SEBI where applicable), lender consents, key customer/vendor consents, and government permits with assignment restrictions.

Competition law. Test CCI thresholds and exemptions early; build timelines for notifications if triggered.

Employment transfer. Map transfer mechanics (Section 25FF for workmen where relevant), continuity of benefits, gratuity/provident fund portability, and works council/union consultations if any.

Tax & stamp. Quantify stamp duty, GST on services, capital gains implications, MAT/AMT, and withholding mechanics in SPAs.

Practical Playbook & Artifacts

Corporate: COI, CIN master, MOA/AOA, registers, minutes, resolutions, ADT-1, AOC-4/MGT-7/7A, CHG set, BEN-1/2/3, PAS-3, PAS-6, demat proofs.

Equity & options: Cap table, ledgers, share certificates, ESOP plan and grants, valuation reports.

Contracts: Top 50 by value/criticality, side letters, amendments, change-of-control clauses.

Licenses & IP: Master license list, renewals, trademarks/patents/copyrights, assignments.

Finance & tax: Audited FS (5 years), management letters & closures, ledgers, GST/ITR/TDS filings, reconciliations, notices/replies.

NBFC/RBI (if applicable): CoR, NOF workings, returns, CIC/CKYCR/FIU/NeSL proofs, policies with Board adoption and RBI intimations.

People: Organisation chart, KMP appointments, employment letters, PoSH, EPF/ESI/Gratuity records.

Litigation & compliance: Notice tracker, pleadings, orders, compounding receipts, adjudication closures.

Insurance: Policy schedule, endorsements, claims history.

IT & data: Access controls, ITGC narratives, security policies, third-party DPAs, incident logs.

Red-flag categories must highlight if any

Unregistered or subsisting charges; missing CHG-4.

RPTs without Section 188 approvals or inadequate disclosures.

Section 185 exposures without valid exemption conditions.

Section 186 breaches (limits/approvals/disclosures).

Demat gaps under Rule 9A/9B; mismatched cap table vs ROC.

Open BEN non-compliances; unclear SBO chain or PN-3 exposure.

NBFC returns/policies missing or mis-aligned with practice.

GST/IT reconciliations with open mismatches or credit reversals not recorded.

Weak ICFR and undocumented SOPs.

Why Compliance Calendar LLP
Because due diligence isn’t a box-tick but it’s evidence, timing, and closure. We run a cross-functional pod (CS + corporate law, RBI/FEMA, tax, audit liaison, NBFC specialist, contracts/IP, labour, data & governance) that works from one live tracker, so issues move from finding → fix → proof without dropping threads. 
CCL  edge is execution:

Evidence-first reviews. Each check maps to the exact section/rule/form (e.g., 185/186, 188, Rule 9A/9B, BEN-1/2/3, CHG suite, DNBS returns, CKYCR/FIU/NeSL) with linked minutes, filings, certificates, and working papers and clean enough for auditors, bankers, and buyers to rely on.

Red-flag to CP conversion. We don’t just list gaps; we convert them into a CP grid with owners, artifacts, and due dates (e.g., RPT ratifications, Section 185 rationalisation, demat closures, Press Note 3 checks, IEPF clean-ups, lender/RBI change-of-control consents for NBFCs).

Speed from SOPs. Pre-built templates for resolutions, disclosures, compounding notes, FEMA filings (FC-GPR/FC-TRS/ODI), ESOP papers, Ind AS memos, and DRHP schedules compress timelines without risking quality.

Banker- and auditor-ready. We align early with your audit firm on qualifications/EoMs and with bankers/registrars on demat, cap-table parity, and restated financials including reducing last-mile surprises.

Sector depth where it matters. NBFC SBR/NOF roadmaps, IRACP application, DNBS stack, CIC/CKYCR/FIU reporting flows, plus SEBI/IRDAI touchpoints where your business model needs them.

Single POC, full stack. One senior lead is accountable end-to-end; behind them, specialists plug in as needed so you get depth without managing multiple vendors.

Valuation uplift through cleanup. Tight ICFR narratives, policy-practice alignment, and documented closures on RPTs/charges/tax-GST reconciliations remove discount factors buyers and public investors apply.

Preparing for an IPO/SME IPO or a change of control is not just about great numbers but it’s about evidencing discipline, traceability, and compliance across the entire company. Below is a practitioner-grade guide you can use as a working blueprint. It blends legal/secretarial, RBI/NBFC, tax, contracts, people, and operational workstreams and folds in the precise Companies Act, FEMA/RBI, EPFO/ESI and allied requirements you listed.

Corporate, Legal & Secretarial Diligence

Constitution, governance & cap table

Confirm that the company is properly constituted and governed in line with the Companies Act, 2013.

Board & KMPs. At least two directors for a private company, with one resident in India; KMPs apply only when paid-up capital is Rs.10 crore or more. Verify appointment/cessation filings (DIR-12), residency proofs, D&O disclosures, and registers.
Shareholding pattern. Minimum two members and not more than 200 (ex-employees excluded). Reconcile the cap table with past PAS-3 filings, transfer deeds, share certificates, Rule 9A/9B dematerialisation status, and BEN-1/BEN-2 trails for Significant Beneficial Owners.
MOA/AOA hygiene. Ensure that objects and restriction clauses match the business model and funding plan. Past alterations must track Section 13 (MOA-INC-33) and Section 14 (AOA-INC-34), with special resolutions and approvals (ROC/RD/NCLT as applicable).
Registers, minutes & filings. Verify complete statutory registers; confirm Section 118/SS-1/SS-2 compliance for Board/General meeting notices, quorum, and signed minutes. Cross-check annual filings AOC-4/MGT-7 or 7A, ADT-1, DIR-3 KYC, INC-22, etc., for timeliness and consistency.
Charges. Track creation, modification, and satisfaction (CHG-1/CHG-9/CHG-4). Unregistered or un-satisfied charges are classic red flags and can stall bank consents and listing approvals.
Related party & loans. Must check the Section 188 approvals/disclosures; map Section 185 exposures and private company exemption conditions; and check Section 186 limits, approvals, and disclosures for all loans/guarantees/investments.
Securities issued. For any rights/private placements, verify Sections 42/62 process, pricing, offer letters, money trail, utilisation of proceeds, and ROC filings within time (PAS-3).
Dividend, IEPF, defaults. Review dividend workings, timelines, and transfers to IEPF for unclaimed shares or dividends items; scan RBI/ECGC defaulter and watch lists if relevant.
Litigation, notices & compounding. Chronicle open/closed prosecutions, show-cause notices, adjudication orders, and compounding status. Clean closures materially de-risk an IPO or buyer’s CP (condition precedent) grid.

FEMA & RBI Workstream (for NBFCs/Investment Cos.)

If you are an NBFC (including an investment NBFC), buyers and the IPO ecosystem will focus on SBR alignment and prudential discipline.

NOF roadmap. Evidence Net Owned Funds of ≥ Rs.5 crore today and a credible plan to meet Rs.10 crore by 31 March 2027 under SBR.
Prudential/IRACP. Confirm income recognition, asset classification and provisioning policies and their application across portfolios (even if currently investment-only).
Return stack. DNBS-02, DNBS-13 (quarterly), DNBS-10 (annually) on time, every time with proof of submissions and query closures.
CIC/CKYCR/FIU-IND/NeSL. Memberships, data pipelines, and compliance logs (CTR/STR filings, KYC uploads within 10 days of relationship opening, NeSL filings for security interests).
Policy suite & website. Annual Board adoption and RBI intimation of Fair Practices Code, Interest Rate, KYC/AML, Investment, Grievance Redressal, and Credit policies. Policies must align with actual practice and digital disclosures.
Deposits stance. Board resolution each year confirming “no public deposits,” unless deposit-taking permission exists; leverage ratio ≤ 7 (as applicable).
Borrowings & Section 180. Track shareholder approvals for borrowing limits and lender consents, including change-of-control provisions.

For change of control: NBFCs typically need prior RBI approval under FEMA for transfer of ownership/control and this becomes a CP for closing. Build timeline buffers accordingly.

FEMA, Forex & FDI/ODI

Borrowings/guarantees. Align Board powers (Section 179) and special resolutions (Section 180) with FEMA and ECB norms; collect lender consents for IPO/M&A triggers.
FDI/ODI history. Reconcile FC-GPR/FC-TRS, ODI forms, pricing certificates, and bank FIRC/ARF evidence; test Press Note 3 cases (beneficial ownership from land border countries).
Utilisation & end-use. Validate the use of foreign funds against affidavit/DRHP disclosures and loan covenants.