Starting a company in India is not that hard
According to the National Association of Software and Service Companies (NASSCOM), India currently is the third-largest startup ecosystem in the world.
In 2019, over 1300 new startups were registered in the “country of many names” adding up to a total of around 9000 tech enterprises. Moreover, India also witnessed a rise of 7 unicorns last year. This way, the country now hosts 24 companies with a valuation of over $1 billion. That’s the third-highest number of unicorns in a single country in the world.
As you can see, starting a business in India is not that hard. In addition, NASSCOM representatives believe that India has a great potential to foster digital innovation, having an “absolute advantage” of talent in digital industries.
Experts reckon that, in a post-COVID world, a few startup segments would profit most: ed-tech, health & wellness, financial services & NBFCs, SAAS & remote-working tools, e-commerce & delivery based services, OTT platforms & online gaming, pharma, life sciences & labs/pathology, and managed office spaces.
Therefore, PaySpace Magazine Global has decided to give you some hints on how to start a company in the prospective Indian market.
Guide on starting a company in India
Develop a business idea
That’s a step common for striving entrepreneurs in every corner of the world. Before registering any business, you need to have a clear vision of the future enterprise and a rough business plan.
Choose the proper business type
Please, mind that in India, there are 5 main types of businesses present.
- Private Limited Company – suitable for fast-growing businesses that will require funding from venture capitalists (VCs). This business type limits the liabilities of its shareholders and enables them to offer employee stock options to attract top talent.
- Limited Liability Partnership – this type of business is less expensive and brings fewer compliance costs. LLP limits the liabilities of its partners to their contributions to the business and offers each partner protection from negligence, misdeeds or incompetence of the other partners.
- General Partnership – here, partners are personally liable for the debts of the business. However, this business type still attracts startup founders with low costs, ease of setting up and minimal compliance requirements.
- Sole Proprietorship – owned and managed by a single person, this business type is very popular among small traders and merchants. Moreover, there’s no separate registration required so the beginners choose it eagerly.
- One Person Company (OPC) – this enterprise type is an upgrade of the sole proprietorship. If an individual entrepreneur has revenues under Rs. 2 crore and paid-up capital smaller than Rs. 50 lakh, they can enjoy full control over the company whereas the liability to business contributions will be limited.
You can find detailed requirements and liabilities for every business type at the official governmental portal for startups.
At the same time, as a foreign investor, you can build your business in India as:
- an Indian company (either a joint venture or a wholly-owned subsidiary);
- a foreign company (with an established liaison office, a branch office, or a project office) whereas only a resident Indian with PAN can be appointed for receiving notices in India on behalf of the company;
You can find more details about eligibility, permitted activities and structure of each business type at the website of Invest India agency.
Register your business
Depending on the type, the procedure will differ.
If you’re creating an Indian company, the application process is simplified. You can fill in the application through Simplified Proforma for Incorporating Company electronically (SPICe -INC-32), with eMoA (INC-33) and eAOA (INC-34) forms included. That is the default option and most companies are required to be incorporated through SPICe only.
Any foreign company can establish its office in India by filing eForm FC-1. The e-Form needs to be digitally signed by the authorized representative of the foreign company. There is no need to apply and obtain DIN for Directors of a foreign company. However, it is mandatory to register the DSC of the authorized representative of the foreign company via associate DSC service available at MCA portal.
For example, if you wish to register a Private Limited Company, there are 6 main steps to follow.
Step 1: Obtain a Digital Signature Certificate (DSC). Applicants can directly approach Certifying Authorities (CAs) with original supporting documents. Self-attested copies are accepted. A letter/certificate issued by a Bank containing the DSC applicant’s information as retained in the Bank database can be accepted too. However, it must be certified by the Bank Manager. DSC can be also received using Aadhar eKYC based authentication. Supporting documents are not required in this case.
Step 2: Obtain DIN. DIN is a unique Identification Number allotted to an individual who is appointed as a director of a company. Any person intending to become a director in a new Company is required to apply for the allotment of Director Identification Number only through SPICe e-form at the time of incorporation.
Step 3: Check the availability of name / registered trademark for the incorporation of the company. Next, reserve the name of the proposed company through online service RUN on the MCA website. The name can also be applied through SPICe+.
While SPICe is an e-form, SPICe+ is an integrated Web form offering 10 services by 3 Central Govt Ministries & Departments. SPICe+ is a part of various initiatives and commitments of the Government of India towards Ease of Doing Business (EODB).
Step 4: Fill the Form SPICE INC-32. You can download the form with instructions here. It includes mandatory PAN (Permanent Account Number) & TAN (Tax deduction Account Number) application. The digital signature of a professional is required to file Form INC-32. The professional must certify that all the information given in the form is correct. The professional can be a Chartered Accountant, Company Secretary, Cost Accountant or advocate.
It is mandatory to use eMoA (INC-33) and eAoA (INC-34) if:
- individual subscribers are Indian nationals;
- individual subscribers are foreign nationals but have valid DIN and DSC and also submit proof of a valid business visa;
- non-individual subscribers are based in India.
Physical copies of MoA/AoA are required to be signed and attached in case non-individual first subscribers are based outside India or individual foreign subscribers do not possess a valid business visa.
Step 6: Get the Incorporation Certificate from ROC. The Registrar of Companies (ROC) is an office under the Ministry of Corporate Affairs (MCA), which is the body that deals with the administration of companies and Limited Liability Partnerships in India. At present, 22 ROCs are operating in all the major states. The ROC provides incorporation certificates which are the conclusive evidence of the existence of any company. A company, once incorporated, cannot cease unless the name of the company is struck off from the official register.
Entrepreneurs who want to establish a Limited liability partnership (LLP) in India have to:
- Reserve the name of the LLP. The applicant has to file eForm 1 with this purpose. You can check the instructions here.
- After reserving a name, the user has to file eForm 2 for incorporating a new Limited Liability Partnership (LLP).
- Next, the LLP Agreement is required to be filed with the Registrar in eForm 3 within 30 days of incorporation of LLP.
All the forms required for registering an LLP can be downloaded using the given link.
In the case with the OPC incorporation, stakeholders can avail of 5 different services (Name Reservation, Allotment of Director Identification Number (DIN), Incorporation of New Company, Allotment of PAN and Allotment of TAN) in one form by applying for Incorporation of a new company through SPICe form (INC-32) – Simplified Proforma for Incorporating Company electronically (SPICe) – with eMoA (INC-33), eAOA (INC-34). In cases when eMoA and eAoA are not applicable, users are required to attach the pdf attachments of MoA and AoA. There is no need for reserving a name separately before filing SPICe. One name for the proposed company can be applied through SPICe (INC-32).
Get proper licenses
All mandatory government registrations and licenses required to run a registered entity differ based on the place of business, sector or industry, entity type, number of employees, etc.
Some examples are:
- GST Registration. All types of entities and individuals who have an aggregate annual turnover of more than Rs.20 lakhs in most State and Rs.10 lakhs in the Special Category States are required to pay Goods and Services Tax and obtain GST Registration. It can be done online at the official GST portal.
- FSSAI License or Registration – Food safety and standard authority of India (FSSAI) is responsible for the safety and standardization of food products nationwide. Hence, every business that deals with selling food, needs to be properly authorized.
- Importer-Exporter Code. This unique 10-digit code is a must for every import/export business owner in India. It can be obtained from the DGFT Department. To get an IE Code, the business must already have a PAN and a Current Account in a bank. IE Code registration is permanent and valid for a lifetime.