Startup & Investor Glossary

Money owed to a company by customers for goods or services already delivered but not yet paid. A key driver of working capital; high receivables with slow collection signals cash-flow risk.

A privately pooled investment vehicle registered with SEBI that raises funds from investors to deploy under a defined investment policy. Covers Category I (VC, SME), Category II (private equity, debt), and Category III (hedge) funds.

Pre-payment of income tax in quarterly instalments during the financial year, required when annual liability exceeds Rs 10,000. Non-payment attracts interest under Sections 234B and 234C of the Income Tax Act.

Tax under Section 56(2)(viib) of the Income Tax Act on share premium received by a closely held company where the issue price exceeds fair market value. DPIIT-recognised startups are exempt.

A term-sheet provision adjusting an investor's conversion price if the company later issues shares at a lower valuation. Broad-based weighted average is most common; full ratchet is the most investor-friendly.

A company's internal rulebook governing shareholder rights, director powers, share transfers, and meeting procedures. Filed at incorporation with the ROC; amendments require a special resolution.

The maximum share capital a company is permitted to issue, stated in the Memorandum of Association. Increasing it requires filing Form SH-7 with the ROC and paying stamp duty on the incremental amount.

A financial statement showing a company's assets, liabilities, and equity at a point in time. Used in due diligence, bank lending, and fundraising to assess net worth and financial health.

A formal meeting of a company's directors, held at least four times a year under the Companies Act 2013. Minutes must be recorded; key decisions on borrowing, accounts, and investments require board approval.

A formal decision passed by a company's board, required for corporate actions such as opening bank accounts, allotting shares, authorising signatories, and approving related-party transactions.

Alternative India-entry structures for foreign companies. A liaison office can only promote the parent's activities; a branch may conduct limited revenue-earning operations. Both require RBI approval under FEMA.

Short-term funding raised between two primary rounds to extend runway while the next round is being closed. Typically structured as a convertible note or SAFE and converts at a discount at the subsequent priced round.

The monthly rate at which a startup spends its cash reserves, typically net of revenue. Combined with cash on hand, it determines runway. Gross burn is total spend; net burn subtracts revenue.

A ledger showing who owns what in a company — founders, employees, and investors — broken down by share class, percentage ownership, and fully diluted value. Essential for modelling dilution before each round.

A financial statement showing actual cash inflows and outflows from operations, investing, and financing activities. The most reliable indicator of near-term liquidity; distinct from P&L which includes non-cash items.

The dominant instrument for foreign investment into Indian startups. Preference shares that must convert to equity at or before a specified event, issued at a premium over face value and compliant with FEMA pricing guidelines.

The minimum tenure a founder or employee must complete before any portion of their equity vests. A one-year cliff is standard: if the person exits before 12 months, no shares vest at all.

The primary statute governing incorporation, management, reporting, and winding up of Indian companies. Administered by the MCA, it covers everything from board structure and audits to CSR and insolvency.

A short-term debt instrument that converts into equity at a future financing round, typically at a discount or valuation cap. Used to defer pricing in early-stage rounds and avoid immediate angel tax exposure.

A statutory obligation under Section 135 of the Companies Act 2013 requiring companies with net worth above Rs 500 crore, turnover above Rs 1,000 crore, or net profit above Rs 5 crore to spend 2% of average net profits on prescribed activities.

The framework of rules, practices, and processes by which a company is directed and controlled. Covers board composition, audit committees, related-party transactions, and disclosures. Investors require strong governance standards before Series A and beyond.

An annual MCA filing where every DIN holder must submit verified KYC details by 30 September. Failure results in the DIN being deactivated, blocking the director from filing any company forms until reactivated.

A funding round where shares are issued at a valuation lower than the previous round. Triggers anti-dilution adjustments for protected investors, signals poor performance to the market, and can demoralise the team.

A certificate from the Department for Promotion of Industry and Internal Trade enabling eligible startups to access angel tax exemption, Section 80IAC tax holiday, self-certification of labour laws, and relaxed public procurement norms.

A bilateral treaty preventing the same income from being taxed in two countries. India has DTAAs with 90+ countries. Determines withholding rates on dividends, interest, and royalties paid to non-residents.

A majority shareholder right to compel minority shareholders to sell their shares on the same terms in a company sale. Prevents a minority from blocking an acquisition; negotiated alongside tag-along rights in every SHA.

The investigative process run by an investor or acquirer on a company's legal, financial, tax, and IP records before closing a transaction. Findings affect valuation adjustments, representations, and indemnity carve-outs.

Earnings before interest, tax, depreciation, and amortisation. A proxy for operating cash generation used in valuation multiples, lending covenants, and investor reporting. Not a cash flow measure — excludes capex and working capital changes.

Foreign currency loans raised by Indian companies from eligible non-resident lenders, subject to RBI guidelines on eligible borrowers, end-use restrictions, minimum average maturity, and all-in cost ceilings.

A contract between company and employee setting out role, CTC, confidentiality obligations, IP assignment, non-solicitation, and termination terms. Critical to include mandatory IP assignment and garden-leave clauses for senior hires.

A third-party account holding funds or documents until contractual conditions are met. Used in M&A to park a portion of the purchase price as security against indemnity claims for a defined period post-closing.

A scheme granting employees the right to purchase company shares at a predetermined exercise price after completing a vesting period. Governed by Companies Act and SEBI (for listed companies); has specific tax events at grant, exercise, and sale.

Regulatory filings and approvals triggered by specific corporate events rather than a fixed calendar. Examples include share allotment, change of directors, increase in authorised capital, charge creation, and name change.

Capital invested by a foreign entity into an Indian company in exchange for equity. Most sectors permit up to 100% FDI under the automatic route; sectors like defence, media, and insurance have caps or require government approval.

The law governing all foreign exchange transactions in India — inbound FDI, outbound ODI, cross-border loans (ECB), and remittances. Violations attract civil penalties unlike the earlier criminal FERA framework.

The process of building a spreadsheet-based representation of a company's financials and projections. Used for fundraising (investor model), M&A (valuation model), board reporting (budget model), and scenario stress-testing.

Mandatory documents under Section 195 before remitting payments outside India. Form 15CA is a self-declaration by the remitter; Form 15CB is a chartered accountant certificate confirming TDS applicability and applicable DTAA rates.

The FEMA filing submitted to the RBI within 30 days of allotting shares to a foreign investor. Reports the amount received, price per share, share class, and valuation certificate. Non-filing attracts compounding fees.

A mandatory declaration filed by directors within 180 days of incorporation, confirming receipt of paid-up share capital and registered office details. Without it, a company cannot legally commence business operations.

A contract between co-founders covering equity splits, vesting schedules, roles, IP ownership, decision-making, and exit mechanisms. Ideally signed before incorporation; far harder to negotiate once a round is imminent.

Designing the legal architecture of an investment fund — choice of vehicle (AIF trust, LLP), SEBI category, fee structure (management fee, carry), investor terms, and regulatory approvals. Determines tax efficiency for fund managers and LPs.

India's first International Financial Services Centre in Gandhinagar, Gujarat. Entities operating within GIFT City enjoy zero GST, reduced income tax, and access to foreign currency markets under a distinct IFSCA regulatory framework.

A unified indirect tax replacing multiple central and state levies, applied on supply of goods and services in India. Rates range from 0% to 28%; most professional and technology services attract 18% GST with full input tax credit.

The mechanism allowing a registered business to offset GST paid on inputs and services against its output GST liability. Reduces tax cascading; subject to matching of invoices on GSTN and reversal for exempt supplies.

Mandatory for businesses with annual turnover above Rs 20 lakhs (Rs 10 lakhs in special category states) and for all inter-state suppliers regardless of turnover. Startups providing export services should register to claim GST refunds on zero-rated exports.

A special zone for financial services in foreign currency, currently at GIFT City and regulated by IFSCA. Funds, banks, insurance companies, and fintech entities operating here get a favourable tax and regulatory regime distinct from India's domestic framework.

An annual filing with the Income Tax Department reporting taxable income, deductions, and taxes paid. Companies file Form ITR-6; the deadline is typically 31 October for companies requiring statutory audit.

A contractual promise to compensate the counterparty for specified losses arising from a breach or misrepresentation. In M&A, indemnities backed by an escrow or cap limit the seller's post-closing financial exposure.

The structured process of selecting and establishing a foreign company's legal presence in India — choosing the right vehicle, ownership structure, sector approvals, tax treaty position, and transfer pricing framework from day one.

Contractual rights for investors to receive periodic financial reports, audited accounts, board minutes, and material notices. Typically scaled to stake size — major investors get monthly MIS; smaller investors get quarterly or annual reports.

A deed under which a founder, employee, or contractor transfers ownership of intellectual property to the company. Investors always verify this in due diligence — undocumented IP held by founders is a deal-stopper.

The investor who anchors a round, sets the term sheet, leads due diligence, and typically takes a board seat. Other investors follow the lead's terms. Identifying and closing a credible lead is the single biggest milestone in any raise.

A term giving preferred shareholders the right to be paid a minimum amount — usually 1x their investment — before common shareholders receive anything in a sale, merger, or winding up. Participating preferred also takes a share of the residual upside.

A hybrid entity combining limited liability for partners with the operational flexibility of a partnership. Popular for professional services firms and fund managers. Governed by the LLP Act 2008; LLPs cannot issue equity to VC investors.

An RBI framework allowing resident individuals to remit up to USD 250,000 per financial year for permitted purposes including overseas investment, education, travel, and family maintenance. Subject to 20% TCS on remittances above Rs 7 lakhs.

A floor tax under Section 115JB applicable to companies that would otherwise pay zero income tax due to deductions. Computed at 15% of book profits. MAT paid generates a credit (MAT credit entitlement) that can offset future regular tax.

The central government ministry administering the Companies Act 2013, LLP Act, and related statutes. All filings — incorporations, annual returns, charges, director changes — are submitted through the MCA21 portal.

A statutory document filed at incorporation that defines a company's name, registered office state, objectives, and authorised share capital. Acts ultra vires (beyond its stated objects) are void; keep objects broadly worded.

Periodic internal reports — usually monthly — consolidating P&L, balance sheet, cash flow, and operational metrics reviewed by management and the board. A well-structured MIS enables early identification of deviation from budget.

Registration on the Udyam portal classifying a business as micro, small, or medium enterprise based on investment and turnover thresholds. Enables access to collateral-free lending, priority sector credit, government procurement preferences, and delayed payment protections.

The per-unit or per-share value of a fund's portfolio after deducting liabilities, calculated by dividing net assets by outstanding units. Used for AIF and mutual fund valuation; disclosed to LPs periodically as per SEBI AIF regulations.

A contract obligating parties to keep specified information confidential. Used before sharing business plans, cap tables, or technical IP with investors or partners. Mutual NDAs are standard; term and carve-outs for publicly available information are negotiated.

Investment by an Indian company into a foreign entity through equity or loans, regulated under FEMA. Permitted up to 400% of net worth under the automatic route; investments in countries on the FATF blacklist require RBI approval.

A financial statement summarising revenues, costs, and expenses over a period to show net profit or loss. The top-line is revenue; deducting COGS gives gross profit; further deductions for operating expenses yield EBITDA, then net profit.

Designing the ownership, governance, and intercompany transaction framework between an Indian entity and its foreign parent or subsidiary, including profit repatriation routes, royalty flows, management fee structures, and transfer pricing documentation.

The share capital actually received by a company from shareholders for shares issued. Cannot exceed authorised capital. Changes in paid-up capital — through fresh allotments, buybacks, or conversions — must be reported to the ROC.

The risk that a foreign company's activities in India — through employees, dependent agents, or a fixed place of business — create a permanent establishment, making the foreign entity taxable in India on profits attributable to those activities.

Obligations under the Prevention of Sexual Harassment Act 2013 for all workplaces with 10 or more employees. Requires constituting an Internal Complaints Committee (ICC), conducting annual awareness training, and filing an annual report with the District Officer.

The total value of a company after a funding round is completed — pre-money valuation plus the new investment. Determines each new investor's ownership percentage and sets the baseline for the next round's dilution modelling.

A legal instrument authorising a designated person to act on behalf of another in specified transactions. Commonly used in cross-border deals to execute India-side documents when a foreign party cannot be physically present at closing.

The agreed value of a company before new external investment. The starting point for negotiating price per share. Pre-money divided by total fully diluted shares determines the price per share at which new investors subscribe.

A financing round where investors and the company agree on a specific valuation, resulting in an agreed price per share. Triggers angel tax exposure (if applicable), stamp duty on share allotment, and FEMA filings for foreign investors.

An investor's contractual right to participate in future funding rounds in proportion to their existing ownership to maintain their percentage stake. Failure to offer pro-rata can be a breach of the SHA and entitle the investor to damages.

The pathway for most FDI into India that requires no prior RBI or government approval. The Indian company simply receives funds, allots shares, files FC-GPR within 30 days, and maintains a FEMA-compliant pricing basis.

Factual statements and assurances made by a party in a commercial agreement. Sellers typically warrant title, absence of litigation, accuracy of financials, and IP ownership. Breach entitles the buyer to indemnity claims post-closing.

The accounting principle under Ind AS 115 determining when and how a company records revenue — upon delivery of performance obligations. Critical for SaaS companies charging annual contracts and project-based firms with milestone billing.

A contractual right allowing an existing shareholder to purchase shares on the same terms before they are offered to a third party. Standard in startup SHAs alongside right of first offer (ROFO) and tag-along provisions.

A statutory form submitted to the Registrar of Companies recording corporate events — incorporation, share allotment, charge creation, directorship changes. Late filings attract additional fees; continued default can lead to prosecution.

The number of months a company can operate at its current net burn rate before exhausting its cash. Standard advice is to maintain 12 to 18 months of runway at all times and begin the next fundraise at least 9 months before reaching zero.

An investment instrument providing the right to future equity with no interest rate or maturity date, converting at the next priced round. Widely used in early-stage US deals; Indian startups must structure SAFEs carefully to avoid FEMA and angel tax issues.

Mandatory registration with SEBI before an AIF can raise or deploy capital. Covers Category I (VC, SME, infrastructure), Category II (PE, debt, funds of funds), and Category III (hedge) funds, each with distinct investment restrictions and reporting obligations.

The Income Tax Act provision empowering assessing officers to add unexplained cash credits — including share subscriptions — to taxable income if the assessee cannot satisfactorily explain the nature, source, and creditworthiness of the amount.

An Income Tax provision granting DPIIT-recognised startups a 100% profit deduction for any three consecutive years out of the first ten years of incorporation, subject to approval from the Inter-Ministerial Board. Effective tax rate in eligible years is zero.

An audit under Section 204 of the Companies Act 2013 certifying a company's compliance with applicable laws, secretarial standards, and corporate governance norms. Mandatory for listed companies and certain unlisted public companies; conducted by a practicing company secretary.

The end-to-end process for a foreign company to establish a legal presence in India — selecting entity type (subsidiary, branch, LO), obtaining CIN, PAN, GST registration, opening an Indian bank account, and completing initial FEMA reporting.

A private contract between shareholders governing voting rights, reserved matters, transfer restrictions, anti-dilution, dividend policy, and exit mechanics. SHA provisions override AOA for signatory shareholders; must be read alongside the AOA and subscription agreement.

The definitive agreement documenting the sale and purchase of shares, including representations, warranties, conditions precedent, indemnities, and closing mechanics. The primary document in any secondary share sale or M&A transaction.

A bundle of tax benefits for DPIIT-recognised startups: exemption from angel tax under Section 56(2)(viib), profit-linked deduction under Section 80IAC, and exemption from long-term capital gains tax on qualifying investments under Section 54GB.

An annual examination of a company's financial statements by an independent chartered accountant, mandatory under the Companies Act. The auditor certifies whether financials give a true and fair view, flagging qualifications that affect credibility with investors and lenders.

The agreement under which an investor subscribes for newly issued shares at an agreed price and on agreed terms. Typically executed alongside the SHA and covers conditions precedent, representations by both parties, and closing deliverables.

A minority shareholder's right to sell their shares alongside a majority shareholder in a third-party sale, on identical terms. Ensures minority investors are not left behind when founders or majority shareholders exit — negotiated in every SHA.

A mechanism under Chapter XVII-B requiring payers to withhold tax before making specified payments — salaries, professional fees, rent, interest, contractor payments. Deducted amounts must be deposited by the 7th of the following month and reported quarterly via TDS returns.

A period of full or partial exemption from income tax available to eligible entities. DPIIT startups get a 3-year holiday under Section 80IAC; units in SEZs get 100% exemption for 5 years under Section 10AA; GIFT IFSC units get 100% for 10 years.

A certificate from a foreign tax authority confirming the entity's tax residency in that country, required for claiming reduced withholding rates under a DTAA. Must be submitted to the Indian payer along with Form 10F before the payment is made.

Rules under Sections 92 to 92F of the Income Tax Act governing pricing of transactions between related entities across borders. All international related-party transactions must be at arm's length; annual TP documentation (Form 3CEB from a CA) is mandatory.

The process of determining a company's present worth. Pre-revenue startups use market multiples and DCF on projected revenues; growth-stage companies use revenue or EBITDA multiples. Valuation also determines the price for angel tax and FEMA pricing compliance.

An outsourced model providing CFO-level financial oversight — MIS, compliance calendars, investor reporting, fundraising support, and strategic advisory — on a fractional basis. Cost-efficient for startups that need board-ready financials but cannot justify a full-time CFO hire.

The timeline over which a founder or employee earns their equity. Standard is 4 years with a 1-year cliff: 25% vests at month 12, then monthly over the next 36 months. Investor-backed companies typically impose vesting on founders at Series A.

Tax deducted by an Indian payer before remitting payments such as interest, royalties, fees for technical services, or dividends to a non-resident. Domestic rates apply unless a lower treaty rate is claimed with a valid TRC and Form 10F.

Current assets minus current liabilities. Measures short-term liquidity. Negative working capital signals inability to meet near-term obligations; a normalised working capital peg is standard in M&A purchase price adjustments.