Cap table due diligence in India: five red flags to check

A cap table is the one page that can quietly end a round. Five patterns in it should change how you read everything else.

You'll usually see the cap table early, as a neat spreadsheet. It's the founder's version. The legal version sits in the company's statutory register and its filings with the Ministry of Corporate Affairs, and your job is to find out whether the two tell the same story. This is check three of the six in how to evaluate early-stage startups in India; here it is in detail.

Why cap table red flags matter more than the valuation

The valuation tells you what a slice costs. The cap table tells you what the slice is a slice of. If the ownership record is wrong, incomplete or full of claims you haven't counted, every number you've negotiated rests on sand, and the fix can stall a round for weeks.

Lawyers flag it too. A June 2026 Legal 500 article by Legitpro Law lists a cap table that doesn't correspond with the statutory shareholder register among the issues that cause transactions to collapse in diligence, alongside unassigned IP and undocumented ESOP grants. Those are exactly the patterns below.

The five cap table red flags

Five patterns deserve a hard look before you price a round: a spreadsheet that disagrees with the filings, an ESOP pool with no paper, convertibles nobody counted, rights that can block your round, and foreign money that was never reported. Each one is fixable. Each one changes how far you trust the rest of the data room.

1. The spreadsheet disagrees with the register

Pull the register of members and every PAS-3 return of allotment. Line them up against the founder's cap table, shareholder by shareholder, share class by share class. The MGT-7 annual return carries a shareholder list too, so you've got a third record. Use it. Differences creep in through transfers signed on an SH-4 but never entered in the register, allotments filed late, or a cofounder's exit handled on a handshake in some Bengaluru cafe. When they disagree, believe the filings. Then ask the founder why they differ, and listen to how quickly they know.

2. An ESOP pool that exists only in the deck

Decks often show a neat pool. 10% of the company, say, on a slide titled Team. Ask who's been promised what. In writing. Ask for the scheme document, the board and shareholder approvals, and the grant letters. No paper? Then there's no pool, and the employees who were promised options may still expect them, which means dilution you haven't priced and people problems you haven't seen.

3. Convertibles that nobody counted

Indian Seed and Series A rounds rarely use plain equity. CCPS, convertible notes and similar instruments sit outside the common-share count until they convert, so ask for a fully diluted table. Check the conversion terms too. The Legal 500 article notes that convertible notes are available only to DPIIT-recognised startups, with a minimum of Rs 25 lakh per investor, so a note issued outside those limits is worth a question. And read the anti-dilution clause. A full ratchet resets conversion to the lowest later price. Weighted average, which the same article calls more prevalent in Indian venture deals, is gentler, but stacked across many holders it still bites.

4. Rights that can block your round

Read every shareholder agreement for reserved matters, pre-emptive rights, ROFR and ROFO clauses and information rights. Short ones are normal. Broad ones aren't. Watch for a Delhi angel's consent right over "any new issue of shares", a Mumbai family office's veto on the annual budget, or a first refusal right that covers every transfer the founders might make. The article warns that reserved matters drafted widely can turn a board seat into an operational veto. If an earlier angel can block a new issue of shares, you'll want that waiver signed before you sign.

5. Foreign money that was never reported

If any investor is foreign, look for the FC-GPR. Under the rules the article sets out, it's due to the Reserve Bank of India within thirty days of allotment, and late filing means a compounding application and a penalty. The same goes for PAS-3 at home: due within thirty days, with a fine of Rs 1,000 a day. Rarely fatal. Always slow. Under the Companies Act, 2013, the filing duty sits with the company, so you'll want it cleaned up before your money lands rather than after.

If the founder's spreadsheet and the company's filings disagree, believe the filings.

How to run the check in an afternoon

You don't need a law firm for a first pass. Ask for 4 things before the second meeting: the cap table on a fully diluted basis, the register of members, the PAS-3 returns and any shareholder agreements. Reading them side by side takes an afternoon, and it'll tell you whether full legal diligence is worth paying for.

• Ownership: cap table against the register, line by line.
• Dilution: ESOP approvals and grants, plus every convertible with its terms.
• Control: reserved matters and pre-emptive rights in each agreement.
• Reporting: PAS-3 dates against allotment dates, and the FC-GPR for any foreign holder.

You can also check without asking. The Ministry of Corporate Affairs lets anyone pay to view a company's public documents on its MCA portal, and if you do this before the first meeting, you may walk in knowing more about the allotment history than the founder's own finance lead, which tells you something about who's been minding the books. Try it once. You'll keep doing it.

A founder who sends all four within days has probably reconciled them already. If you're on the founder side of this list, our startup due diligence checklist covers the full set of documents to file.

What a red flag should change, and what it shouldn't

Treat a red flag as a question first. Ask it plainly. Some are paperwork a company can put right before closing; others change the price or the structure. The finding that matters most is whether the founder already knew. A founder who flags a gap before you find it is showing you how they'll report problems after you invest.

Put any fix into the conditions precedent, with a date the founder agrees to and a named owner for each fix, whether it's 1 late PAS-3 or 3 missing grant letters. For the ESOP side in more depth, see ESOP pool checks before investing. At MyStartupValley, the cap table is one of six due diligence parameters each startup is evaluated on, and deal notes are written by the MSV team. To start from companies that have already been through that review, see the investor workspace.

Questions

What should an investor check in a startup's cap table in India?

Check that the cap table agrees with the register of members and the PAS-3 filings at the Ministry of Corporate Affairs, that every ESOP grant is documented, that convertible instruments are counted on a fully diluted basis, that existing rights can't block your round, and that foreign investment was reported to the RBI.

Why does a cap table have to agree with MCA filings?

Because the filings are the legal record. A founder's spreadsheet is a summary that can drift after transfers, unrecorded grants or late allotments. If the two disagree, the company has to correct its records before you invest, and that can take weeks in the middle of a round.

What happens if a startup misses a PAS-3 or FC-GPR filing?

A June 2026 Legal 500 article notes PAS-3 should be filed within thirty days of allotment, with a fine of Rs 1,000 a day for lapses, and late FC-GPR reporting to the RBI leads to compounding and penalties. Both are usually fixable, but they cost time and money.

Sources: Legal 500 (Legitpro Law), Road Beyond The Term Sheet: Legal Considerations In Startup Funding, Jun 2026