1. Agree between yourselves first
Before you register anything, agree who owns what, how shares are earned over time, and what happens if someone leaves. It is much easier while everyone is still friendly, and the answers decide how the company is set up.
- Who the founders are, and each person's role and time commitment.
- The split of shares, and the vesting that goes with it.
- Which decisions need every founder's agreement.
- That what each founder builds for the company belongs to the company.
2. Choose the type of business
Most startups that plan to raise money from investors, or to give shares or options to their team, register as a private limited company under the Companies Act, 2013. A company is a legal person of its own: it owns its assets and owes its debts, and it is owned through shares.
A limited liability partnership (LLP), under the Limited Liability Partnership Act, 2008, is also a legal person of its own, owned by its partners rather than through shares. It can suit a business the partners mean to own between themselves, such as a services firm. Because it has no shares, it cannot sell shares to an investor or grant share options to employees.
A sole proprietorship or an ordinary partnership is not separate from its owners: they are personally responsible for its debts.
Changing type later is possible but takes time and money, so ask a company secretary, chartered accountant or lawyer which fits your plans before you file.
3. Register with the Ministry of Corporate Affairs
Companies and LLPs are registered online with the Ministry of Corporate Affairs (MCA). A professional usually files for you. Expect to need:
- A name the registrar accepts. Have two or three ready in case the first is refused, and check it is not too close to an existing company or trade mark.
- The directors (for a company) or designated partners (for an LLP), with each person's identity and address proof.
- A digital signature certificate for each person who signs the forms.
- A registered office address, with proof that you may use it.
- The company's founding documents, which your professional drafts. Ask them to reflect what you agreed in step 1.
4. Open a bank account in the company's name
Keep the company's money apart from the founders' money from the first day. Pay the founders' capital into this account, and pay the company's costs from it. Banks usually ask for the certificate of incorporation, the company's PAN and the directors' documents; each bank's list differs, so ask yours.
5. Find out whether you need GST registration
Goods and Services Tax (GST) registration is required once a business's turnover passes a limit, and for some kinds of business from the first sale whatever the turnover, for example some sales from one state to another or through some online marketplaces. The limits and the exceptions depend on what you sell and where, and they change.
Ask a chartered accountant whether and when you need to register before you send your first invoice. Registration is made on the government's GST portal.
6. Consider Udyam registration
Udyam is the government's registration for micro, small and medium enterprises (MSMEs). Some government schemes, some lending, and some protections for small suppliers who are paid late are open to registered businesses. Whether your business counts as micro, small or medium depends on its investment and turnover under the current rules.
Register only on the government's own Udyam portal. Be careful with websites that look official and charge to do it for you.
7. Consider DPIIT recognition as a startup
Under the Startup India initiative, the Department for Promotion of Industry and Internal Trade (DPIIT) recognises eligible private limited companies, LLPs and registered partnership firms as startups. Recognition can open some tax and compliance relief and some government programmes.
Who is eligible (including limits on the business's age and turnover) and what recognition gives are set by government notification and change from time to time. Read the current rules on the official Startup India portal, and ask a professional which benefits would apply to you before you plan around them.
8. After you register
A company has filings and records to keep every year, and so does an LLP. Missing them can mean penalties. Agree with your professional, in writing, what they will file for you and when.
- Note the yearly filing dates for the company and for tax, and who is responsible for each.
- Keep the records and minutes of meetings your professional tells you to keep.
- Put the founders' agreement into a shareholders' agreement drafted by a lawyer.
- Have each founder assign to the company, in writing, what they made for it before it was formed.
- If you depend on a name or a logo, ask a lawyer about registering it as a trade mark before you spend on it.
Who can help
A company secretary (CS), a chartered accountant (CA) and a lawyer each cover part of this. Many founders start with one professional who handles registration and the yearly filings, and bring in a lawyer for the shareholders' agreement. Ask for a written quote that says what is included.