IPO, M&A or Funding Round Ahead? The First Legal Hire Smart Companies Make
When an organization transitions from being solely a growth-focused start-up to a mature, publicly listed or target for acquisition, it requires a fundamental shift in its legal management. In its early stages, an organization typically uses external counsel on a project by project basis to comply with legal requirements; however, as the organization nears significant liquidity events such as an Initial Public Offering (IPO), Merger and Acquisition (M&A) transaction, or substantial international Funding round, the need for internal legal leadership becomes a matter of statute and strategy.
The first legal employee hired by a company to fulfill its need for compliance and regulatory matters or responsibilities is not to be a compliance officer; rather, they will serve as a major contributing factor to the organization’s long-term viability as well as the regulatory compliance of the company going forward.
In India, it is customary for the first legal person to be both a qualified lawyer (LL.B.) and have a Company Secretary (CS) designation to meet the legal requirements for statutory Key Managerial Personnel (KMP) under the Companies Act, 2013. They will also have a broad and comprehensive set of skills to manage litigation, intellectual property and contractual risk. Smart companies know that when hiring their first lawyer, timing is of the essence. If the company waits to hire a lawyer until they know they will be conducting a transaction, they could potentially learn about past compliance deficiencies that could delay or even derail their deal.
The current corporate landscape in India has changed from negotiation based on value to negotiation based on risk and regulation. This is due to the vigorous enforcement of actions taken by the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Ministry of Corporate Affairs (MCA). As a result, the legal hire needs to create a scalable ride that integrates technology like AI and legal operations to provide maximum efficiency while minimizing external costs.
The Key Managerial Personnel Framework under the Companies Act, 2013
The first legal hire is based on Section 203 of the Companies Act (2013), which states that certain types of companies must appoint whole-time KMPs for accountability at management. Therefore, for all listed companies and all public companies with paid-in share capital of 10 crore rupees or more, it is required to appoint a Company Secretary whole-time Chief Executive Officer (CEO) or Managing Director (MD), Company Secretary, Whole-Time Director, Chief Financial Officer (CFO) and any other Officer found below the Director level in whole-time employment designated by the Board as Key Managerial Personnel.
Section 2 (51) of the Companies Act (2013) gives the definition of a Key Managerial Personnel for a company as the CEO/MD, Company Secretary, Whole Time Director, CFO, and all other Officers found below the level of Director who meet the criteria established by the Board of Directors in their designating him/her as a KMP.
These appointments have to comply with specific legislation outlining the obligations associated with corporations operating under different classes of legislation. Therefore, all companies listed on a registered stock market must appoint a Managing Director (or CEO), Company Secretary and a Chief Financial Officer. All unlisted public companies with a paid-up share capital of INR 10 Crores, or greater than INR 10 Crores must also appoint these three corporate officers.
All private companies have also been required to appoint a whole time Company Secretary if the paid-up share capital is equal to or greater than INR 10 Crores. The function of the Company Secretary as stated in Section 205 of this Act is to report to the Board of Directors on the compliance with this Act, including all rules and regulations thereof. In addition, the current functions of a Company Secretary extend beyond merely doing secretarial tasks; they will assist the Board in carrying out the business of the Company and will ensure that the Company meets its obligations with respect to proper corporate governance within the Company.
The IPO Readiness Protocol: SEBI ICDR 2018
The first legal hire for a company as they prepare for an IPO, acts as the main point of contact between the issuer, the merchant bankers, and the law firms drafting the offer documents. Guidelines laid out by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR) to ensure that rigorous expectations exist regarding both eligibility and disclosure and require very high internal expertise within issuers.
Issuers making an IPO must fulfill certain financial criteria over a three-year period (of 12 months) based on restated and consolidated statements to comply with Regulation 6(1) of the ICDR 2018. The requirement of having net tangible assets totaling at least three crore rupees each year for the last three financial years (each year being a full twelve-month period) of which not exceeding fifty percent are in monetary type asset is also included in this listing.
To pursue this profitability path, the issuer must have average operating profits of at least Rs. 15 Crores over the previous three years (with operating profit for each of those three years). Additionally, a minimum net worth of Rs. 1 Crore must be maintained on the issuer’s books in each of the prior three years. If the issuer does not qualify, it must use the Regulation 6(2) route with at least 75% of the Net Offer to be allocated to QIBs. One of the primary functions of the first legal hire when completing a successful IPO is the identification and classification of “Promoters” and “Promoter Group”. The legal head must ensure that the Minimum Promoters’ Contribution (MPC) of 20% of the post-offering capital and that the promoter’s shares are subject to a lock-in period of at least 3 years from the IPO date.
Post-Listing Obligations: SEBI LODR 2015 and the Compliance Officer
After an organization lists its shares on a stock exchange, it is considered to be in a period of continual disclosure according to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”). Generally, the Compliance Officer position, which is required pursuant to Regulation 6 of the LODR, will by default be the first lawyer added to an organization.
Pursuant to the significant amendments to the LODR which will be effective December 12, 2024, there will now be a requirement for the Compliance Officer to be a KMP and in the full-time employment of the listed company. The Compliance Officer must be in a role that is not more than one level below the Board of Directors, so there is a direct line of authority to the Compliance Officer to administer the compliance functions of the company effectively.
The Compliance Officer’s responsibilities mandated by LODR are broader than those of a Company Secretary as per Companies Act compliance. The company secretary needs only to “report” that the company is in compliance, whereas for the compliance officer they must also “ensure” that the company meets its obligations according to all applicable laws and regulations.
The compliance officer will be responsible for monitoring the resolution of investor grievances, ensuring that quarterly financial results are filed in a timely manner and managing the disclosure to the stock exchanges of all “material events” per Regulation 30. The company secretary will also have to manage the disclosure of “material” information to the stock exchanges (within the time allotted) for the first legal hiring of the company, which can be anywhere from 12 hours to 24 hours depending on the nature of that event.
Mergers, Amalgamations, and the Fast-Track Revolution
The first lawyer to be hired in an M&A transaction is the lead legal architect of the corporate reorganization effort. The architecture for mergers and amalgamations in India is primarily outlined in Sections 230 to 234 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. A traditional merger will usually follow a court approval process and take approximately 9 to 15 months to complete through the National Company Law Tribunal (“NCLT”). However, the “Fast Track” merger process offered by Section 233 allows certain types of consolidation transactions to occur more rapidly than under traditional methods.
Recent changes to the law have been passed in 2024 and 2025, expanding the scope of companies eligible to use the fast-tracked merger process. Under the Amended Rules, all unlisted companies are now eligible to complete a fast-track merger provided they are “debt-light” (i.e., have total loans, debentures or deposits of not more than 200 Crore rupees, and have no prior defaults). The required number of shareholder and creditor approvals also vary notably. A traditional merger requires three-quarters of the value of a majority of all shareholders and all creditors to approve a merger. In contrast, a fast-track merger only requires 90% of the number of shares held by shareholders and nine-tenths of the value of creditors.
Foreign Funding and the FEMA Regulatory Framework
For firms looking to get funding from abroad, the first legal employee hired would need to manage a rule-based system created by the Reserve Bank of India under the Foreign Exchange Management Act (FEMA). This means making sure that every transaction (both an infusion of equity and/or a facility for debt) is properly reported and within the time frames required.
When an Indian startup is getting foreign direct investment, they must file Form FC-GPR within 30 days of getting shares allotment. Any transfer of shares between residents and non-residents must also complete Form FC-TRS within 60 days of the transfer date. Ongoing reporting requirements include an Annual Return on Foreign Liabilities and Assets (FLA), which need to be filed by July 15 each year, as well as an Annual Performance Report (APR) regarding all overseas investments.
The legal head will also manage foreign debt through the External Commercial Borrowings (ECB) Framework. Proposed draft regulations for 2025 dictate that there will be a uniform Minimum Average Maturity Period (MAMP) of three years, and the borrowing limit will be the greater of USD$1 billion or 300 percent of net worth. In addition, the Foreign Exchange Management (Guarantees) Regulations for 2026 will require a new format that has reporting to be done via Form GRN quarterly within 15 days of the end of each quarter.
The Corporate Laws (Amendment) Bill 2026: A Paradigm Shift
The first legal employee must must stay abreast on how changes in law affect the definition of company liability and management. The Corporate Laws (Amendment) Act, 2026 was introduced on 23 March 2026, and proposes over 60 changes to the Companies Act, 2013. One key change being proposed is to decriminalise procedural defaults (i.e., to turn procedural mistakes (technical errors) from being subject to criminal prosecution/having a criminal offence into only being subject to civil penalties). As part of this change, the Bill is introducing a “Recovery Officer” under Section 454B and a “Settlement Proceedings” mechanism under Section 454C in order to provide a mechanism for alternative dispute resolution.
The Bill is also proposing to increase the threshold for entities that qualify as “small companies” to a paid-up capital of INR 20 crores and an annual turnover of INR 200 crores, thereby increasing the number of organisations that can take advantage of lower levels of compliance. The Bill is proposing that the net profit threshold of applicable companies with respect to Corporate Social Responsibility will increase from INR 5 crores to INR 10 crores. Finally, the Bill is also adding a new section 203A which will prescribe an orderly process for resigning as a whole time KMP and states that the act of resigning as KMP will not relieve a KMP from liability for any breaches of compliance made during their time as KMP.
Conclusion: Synthesizing Legal Leadership for Global Scaling
Firstly, appointing the very first legal hire marks a key milestone for a smart company, demonstrating its growth into a sophisticated corporation. Appointment of a legal hire holds many responsibilities; therefore, an organisation should ensure its successful selection based on having ‘dual’ qualifications – possessing both Chartered Accountant (C.A) and LL.B qualifications – as well as being considered an expert in managing the ongoing reporting obligations under Companies Act 2013, disclosing information under SEBI ICDR 2018, and principle based compliance under FEMA. The position of internal Legal Head as a strategic partner and custodian of corporate Integrity will be increasingly important in terms of continuing to create sustainable value as India modernises its framework via Corporate Laws (Amendment) Bill, 2026.
