Before you start, as a reader, do you know what it takes to set up a startup? You might have a basic idea, but are you aware of the intricate legalities? If your answer is no, then keep reading.
Depending on the type of startup, you can access different government exemptions and other benefits. But for that, you need to register it with the Indian government. It includes establishing your startup as a legal entity to claim the tax benefits or exemptions, pass the due diligence, and build a credible brand image to win the trust of your target audience and the market.
All startups in India need a Certificate of Recognition from the Department for Promotion of Industry and Internal Trade (DPIIT) through the Startup India portal. But how do you register a startup in India? The process requires a few documents to prove the startup’s details, such as its purpose and structure. We have created a checklist of legal documents you need in the startup registration process in India.
Before you jump on the checklist, you must know if your startup is eligible to be called a ‘startup’.
The following are the eligibility criteria for startup recognition under the Startup India program:
1. The startup must be a private limited company, partnership firm, or a limited liability partnership.
2. It should be ≤10 years from the date of incorporation.
3. Their yearly turnover should be under INR 100 Crores in all the 10 years.
4. They should innovate, improvise existing products/services/processes, and generate employment and wealth.
5. It should not be related to or copied on existing business.
Legal Checklist for Registering a Startup in India
The legal checklist is essential when you have validated your startup idea. It helps legalize your startup for smooth operations and allows you to claim aid and exemptions.
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Business Structure
Startup registration and legal requirements change based on the business structure. Choosing the structure impacts taxation, liabilities, and the startup’s future. The following are the common business structures seen in the Indian startup ecosystem.
1. Sole proprietors: They are the sole owners of the startup and are liable for all losses and debt of the business that puts their assets at risk.
2. One Person Company (OPC): The sole proprietor is the director of the business but has limited liability, protecting their private assets.
3. Partnership firm: The startup has multiple partners, each liable for startup losses and debts.
4. Limited Liability Partnership (LLP): Startups have multiple partners and a limited liability safeguarding their assets.
5. Private Limited Company (PLC): The startups can raise funding, have limited liability, and offer their employees shares.
Choose the business structure based on the control, funding, and liabilities you desire.
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Certificate of Incorporation (COI)
If you establish your startup as an LLP, PLC, or OPC, you need to incorporate a business as a legal entity with a Certificate of Incorporation. The startup must register its startup with the Ministry of Corporate Affairs (MCA) to legitimize its business and kick start its operations.
You must fill out the SPICe+ form on the MCA portal to obtain the COI. You must attach the Memorandum of Association (MoA) and Articles of Association (AoA).
Firstly, get a Digital Signature Certificate (DSC) from a licensed Certifying Authorities (CA) to sign the e-documents with encryption for better security. Then, secure the Director Identification Number (DIN) for all your designated partners in the startups to create the MoA and AoA.
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Identity proof of the Proprietor(s)
The owner and directors of the startup need valid identity proof for Startup India compliance to legitimize the business. The proof should verify their nationality and address. Following are the few acceptable identity proofs for proprietors and startup verification.
1. Passport-size photos
2. Aadhar Card
3. PAN Card
4. Passport or Voter ID
5. Utility bills (for business address)
6. Taxation Compliance Documents (PAN & GST)
One of the legal obligations of the startup is paying taxes. Therefore, while registering a startup in India, the startup must present their business’s Permanent Account Number (PAN). GST registration for startups is mandatory if the startup’s annual turnover is more than INR 40 Lakhs (for products-based startups) and INR 20 Lakhs (for service-based startups). The GST exemption limit ranges from yearly turnover of INR 10 Lakhs to 20 Lakhs in many states. A startup may need a Tax Deduction and Collection Account Number (TAN) if they opt for TDS.
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Legal Documents of Funding
If you have raised funds from external sources, you should present relevant documents like the term sheet, shareholders’ agreement, and the due diligence report.
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Registration of Intellectual Property
Startups offer unique solutions and thus must protect their product/service/process. Intellectual property rights help startups safeguard their intellectual property by registering their trademarks, patents, copyrights, and trade secrets. These IP rights must be a part of your documentation during registration to avoid legal disputes and protect their assets.
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Industry-specific Regulation Certificates
Startup licenses and permits are industry-dependent. For example, startups with edible products need FSSAI Licenses, Fintech startups need approval from RBI and SEBI, and healthcare startups need certificates and medical licenses. These certificates and approvals also have to be a part of your startup registration in India.
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Employment Agreements
A startup must comply with labor laws and regulations for provident funds (PFs), employee state insurance (ESI), and professional tax. Furthermore, if you offer shares to your top employees, you must provide the details of the Employee Stock Option Plan (ESOP) for business registration in India.
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Conclusion
Registering a startup in India is crucial to operate legally, claim tax benefits, and protect your startup from disputes. You must provide a few documents to register the startup in the Startup India portal for the mandatory DPIIT recognition. These documents include business structure selection, taxation compliance, intellectual property protection, and regulatory compliance. Entrepreneurs should seek professional legal and financial guidance to ensure smooth registration and long-term business success.
FAQs
1. Why is it important to register a startup in India?
Registering a startup in India gives diverse benefits and protection to the startup so that it can operate smoothly. Firstly, regulatory compliance enables startups to easily claim government grants and get resources. The DPIIT recognition gives credibility to the startups working in the industry and securing funding from investors. It protects the founder’s assets, intellectual property, and taxes. Without registration, startups may face legal issues, lack investor trust, and miss out on crucial business growth opportunities.
2. What are the common challenges of startup registration in India?
While registering the startup, the entrepreneur may face difficulty selecting the business structure and acquiring the necessary permits, certificates, and industry-specific licenses. The paperwork can be overwhelming, and application delays often stress the entrepreneur. Securing intellectual property rights, maintaining regulatory compliance, and managing tax obligations like GST and corporate taxes can be challenging. Working with experts can help you navigate the process easily.
3. Do I need GST registration for startups in India?
GST registration is mandatory for startups if their annual turnover exceeds INR 40 Lakhs for product-based startups and INR 20 Lakhs for services-based businesses and startups in certain states. However, even if your turnover is below the threshold, voluntary GST registration can be beneficial, especially for B2B startups. It gives tax credits and builds trustworthiness in the market. Non-compliance can lead to penalties, so it’s essential to determine whether GST registration applies to your business and register accordingly.
