Investing in a foreign country is both exciting and challenging, especially when entering a dynamic market like India.
Foreign investors often find enormous potential in India’s fast-growing economy, but also recognize that understanding the local legal framework is critical to minimizing risks and making informed business decisions.
Due diligence plays a key role in ensuring that investments comply with regulatory requirements and requirements.
At Ahlawat & Associates, we assist foreign investors, especially Russian businesses, with thorough due diligence that identifies risks, checks and compliance requirements, laying a solid foundation for sustainable success in India.
This blog provides a detailed checklist to help foreign investors understand the key components of legal due diligence in India. This guide will also give investors a comprehensive understanding of what is required to safely and successfully enter the Indian market.
1. Corporate structure and ownership verification
- Objective : Ensure that the target business or joint venture has a valid and compliant corporate structure under Indian law.
- Key points:
- Check the company’s constituent documents such as the Certificate of Incorporation, Articles of Association (AoA) and Memorandum of Association (MoA).
- Check the shareholder structure, board composition and voting rights, especially if the company intends to form a joint venture or take control of the entire company.
- Determine whether the business structure is appropriate for the type of operations you plan to conduct in India. For example, should you consider setting up a wholly owned subsidiary, a joint venture, or a branch? Each structure has different regulatory and tax obligations.
- How our company helps:
- We conduct a detailed review of registration records to verify legal compliance and ownership structure, and advise on the best setup to achieve your business goals.
2. Compliance with legal and regulatory requirements
- Objective : To assess the company’s compliance with Indian laws and regulations.
- Key points:
- Review documents filed with the Ministry of Corporate Affairs (MCA), Reserve Bank of India (RBI) and other relevant authorities.
- Confirm compliance with the Companies Act 2013, including board meetings, annual reports and filing of financial statements.
- Identify any non-compliance with foreign direct investment (FDI) norms. FDI policies in India vary by industry, so ensure that the target business complies with FDI restrictions and has obtained the necessary approvals.
- Identify tax deficiencies or any outstanding or pending tax claims from the agency during the comprehensive tax audit process.
- How our law firm helps:
- Our experts ensure that businesses comply with legal obligations, minimising the risks associated with regulatory fines or restrictions on foreign direct investment.
3. Licenses and permits
- Objective : Ensure that the target business has the necessary licenses and permits to operate legally in India.
- Key points:
- Conduct an inventory of all licenses and permits, including industry approvals.
- Please confirm that these licenses are current and transferable if purchased.
- General licenses include GST registration, Import Export Code (IEC) and sector specific licenses (e.g. food, healthcare, pharmaceutical, telecom, etc.).
- Understand which permits are urgent and may need to be renewed after investment.
- How our law firm helps:
- We help verify all necessary licenses and permits, ensuring smooth operations and regulatory compliance for your business.
4. Financial compliance and tax obligations
- Objective : Assess a company’s financial reporting and tax compliance.
- Key points:
- Review audited financial statements, tax returns and documents for the past several years.
- Ensure that all taxes including corporate tax, GST, withholding taxes and import/export duties have been correctly declared and paid.
- Identify any existing tax liabilities, disputes, or pending litigation that may impact the business following the acquisition.
- Review India’s tax treaties and determine if any benefits apply to your investment, such as the Double Taxation Avoidance Agreement (DTAA) with Russia.
- How our law firm helps:
- Our team works with financial professionals to provide a detailed analysis of tax compliance and outstanding liabilities, helping you understand potential financial risks.
5. Employment contracts and compliance with labor standards
- Objective : To ensure the company’s compliance with labor laws and properly structured employment contracts.
- Key points:
- Review employment contracts to ensure that terms regarding salary, benefits, and job responsibilities are clearly defined.
- Confirm compliance with Indian labour laws such as the Payment of Wages Act, Industrial Disputes Act and Employees’ Provident Fund (EPF).
- Check the status of employment-related benefits, including leave policies, health and safety measures, and insurance.
- Assess the risk of labor disputes, unresolved claims, or impact on unionized workforce.
- How our law firm helps:
- We evaluate employment contracts and ensure compliance with local labor laws, identifying potential risks associated with disputes or lawsuits.
6. Intellectual Property Rights (IP)
- Objective : Protect the company’s intellectual property and assess the risks of infringement.
- Key points:
- Identify registered and pending intellectual property rights, including patents, trademarks, copyrights, and designs.
- Confirm ownership of these IP assets, including any third party licenses or restrictions.
- Check the validity of your intellectual property registration in India to ensure that any patents or trademarks are valid.
- Determine whether there are any intellectual property disputes or potential risks of infringement.
- How our law firm helps:
- Our lawyers help evaluate a target company’s intellectual property portfolio, ensuring that valuable intellectual property assets are protected and secure from infringement risks.
7. Compliance with environmental requirements (if applicable)
- Objective : To verify compliance with environmental regulations if the company operates in a sector requiring environmental supervision.
- Key points:
- Review environmental impact assessments, pollution control certificates and compliance with local environmental laws.
- Review documentation on waste management and disposal practices, air quality management, and water treatment compliance.
- For industries such as manufacturing, confirm that environmental permits are valid and transferable in the event of a merger or acquisition.
- How our law firm helps:
- In industries subject to environmental regulations, our firm verifies your business’s compliance with local standards, helping you avoid costly fines or legal issues.
8. Contractual obligations and risk assessment
- Objective : Assess current contracts and the risk of legal disputes.
- Key points:
- Review all important contracts, including supplier agreements, customer contracts, leases, and joint venture contracts.
- Evaluate termination provisions, renewal terms, and transferability in the event of a change of ownership.
- Identify any existing disputes, risks of default, or potential penalties.
- Review confidentiality and non-compete policies to protect trade secrets and customer information.
- How our law firm helps:
- Our lawyers assess the risks and enforceability of important contracts, highlighting any issues that could impact the stability of your business.
9. History of litigation and analysis of disputes
- Objective : To understand the legal position of the target company and its exposure to litigation.
- Key points:
- Identify any current or pending litigation, including civil, criminal, tax and regulatory matters.
- Assess the financial implications of each dispute and the potential outcomes.
- Review a company’s dispute resolution history to assess the risk of future litigation.
- How our law firm helps:
- We examine the legal status of the business, helping you understand any litigation risks that may impact your investment.
10. Anti-Corruption and FCPA Compliance
- Objective : To ensure compliance with anti-corruption legislation, especially if the business involves foreign ownership.
- Key points:
- Review policies and compliance with anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA) and the Prevention of Corrupt Practices Act of 1988.
- Assess internal controls, reporting structures and training initiatives for compliance with anti-corruption standards.
- Assess your exposure to the risk of unethical conduct, particularly in industries that interact heavily with government, such as infrastructure or healthcare.
- How our law firm helps:
- Our firm evaluates a company’s compliance practices to ensure ethical and legal operations while protecting your investments from regulatory sanctions.
Final conclusions
For foreign investors, conducting due diligence is the foundation of doing business safely and successfully in India.
By paying attention to corporate compliance, financial reporting, employment standards, intellectual property, and environmental guidelines, investors can reduce risks, avoid unexpected liabilities, and gain a clear understanding of the regulatory framework.
At Ahlawat & Associates (A&A) , we specialize in assisting foreign businesses, including Russian companies, in navigating the Indian legal landscape.
Our team of experts conduct thorough due diligence to protect your investment, providing you with the information and advice you need to make confident and informed decisions.
Starting a business in India offers significant opportunities, but success begins with a thorough approach to compliance and risk assessment.