Startup Advisory - Cap Table, ESOP & Fundraise Structuring

What is startup structuring advice?

As a startup grows, its ownership gets more complex: co-founders with vesting, an ESOP pool for employees, angel investors, convertible instruments, and eventually institutional rounds. Each step has legal, tax, and regulatory consequences under the Companies Act, FEMA for foreign investors, and the Income-tax Act.

Structuring advice keeps the cap table accurate, designs ESOPs that actually motivate people, and plans each round so the instruments, valuation, filings, and approvals are right the first time.

The key terms

The building blocks of startup equity:

Cap table

The record of who owns what: founders, investors, and the ESOP pool, on a fully diluted basis.

ESOP pool

Shares reserved for employee stock options under a scheme approved by special resolution, with minimum one-year vesting.

ESOP taxation

Employees are taxed on the gain at exercise as a perquisite. Employees of eligible DPIIT startups can defer that tax until sale, exit, or a set period.

Priced equity

Shares issued at an agreed valuation, supported by a valuation report and, for foreign investors, FEMA pricing rules.

Convertible instruments

Compulsorily convertible preference shares (CCPS) and debentures, and — for DPIIT startups — convertible notes, which convert into equity later.

Founder vesting

Founders' shares earned over time, so a departing founder doesn't keep a large stake.

Anti-dilution and preferences

Investor rights that protect them in later rounds or on exit, set out in the shareholders' agreement and articles.

Why it matters

Early mistakes in equity are expensive to unwind:

Clean cap tables close rounds

Every future investor reconstructs the cap table. Gaps and errors delay rounds.

Regulatory filings

Allotments, foreign investment, and ESOPs each have filings with deadlines and penalties.

FEMA pricing

Shares issued to foreign investors must meet pricing rules, with reporting within set timelines.

ESOPs that work

A poorly designed ESOP demotivates rather than retains. Tax deferral for eligible startups helps employees.

Founder disputes

Without vesting, a departing co-founder can keep a stake the business needs.

Dilution planning

Knowing how each round and pool dilutes founders helps negotiate better.

Instrument choice

CCPS, convertible notes, and equity have different legal and tax consequences.

Who is this for?

The share allotment filings themselves are covered in our Allotment & Transfer of Securities service. This service covers the planning and structure around them.

Common fundraising instruments

How the main instruments compare:

What we'll need from you

Current cap table

Shareholding, past allotments, transfers, and any promised equity.

Constitutional documents

MoA, AoA, and any shareholders' or founders' agreements.

Term sheet

The proposed terms of the round, if you have one.

ESOP plans

How many people, what roles, and your intended pool size.

Investor details

Investors' identity and residency, for FEMA and KYC.

Financials

Recent accounts and projections, for valuation.

Advice is quoted per engagement, depending on the round and complexity.

How we structure a round

A typical engagement:

1. 1

   Clean up the cap table

   We reconstruct and verify the cap table from filings and records, and fix gaps.

2. 2

   Design the structure

   Instruments, ESOP pool size, and founder vesting are agreed.

3. 3

   Get approvals ready

   Authorised capital, board and shareholder resolutions, and articles are prepared.

4. 4

   Valuation and pricing

   Valuation reports are obtained, meeting Companies Act and FEMA requirements.

5. 5

   Close and allot

   Funds are received, shares allotted, and PAS-3 and FEMA filings made.

6. 6

   Update records

   Registers, cap table, and investor documents are updated.

After the round

Keeping equity clean between rounds:

Maintain the cap table

Update it for every allotment, transfer, and ESOP grant.

Administer ESOPs

Track grants, vesting, exercises, and leavers.

Investor reporting

Meet information rights in the shareholders' agreement.

FEMA compliance

File annual returns on foreign liabilities and assets where applicable.

Plan the next round

Top up the ESOP pool and authorised capital ahead of time.

Keep documents together

A data room with all equity documents speeds up the next round.

Benefits and responsibilities