Master the legalities of launching your Indian startup. This guide covers step-by-step company incorporation via MCA, the process and benefits of DPIIT recognition, and essential licenses and permits for operational compliance.
In the previous article, we explored the foundational aspects of starting a startup in India, including the definition of a startup and the importance of choosing the right legal structure. In this second part of our series, we will delve into the intricacies of navigating the legal landscape, focusing on the step-by-step process of incorporating your business and obtaining the crucial DPIIT recognition, along with an overview of other essential licenses and permits.
Step-by-Step Process of Incorporating Your Business in India (via MCA)
The process of legally incorporating a business in India involves several key steps that are primarily facilitated through the Ministry of Corporate Affairs (MCA) portal. The initial step is to obtain a Digital Signature Certificate (DSC) for all the proposed directors and shareholders. A DSC is a secure digital key that certifies the identity of the holder and is required for signing documents electronically when filing with the MCA. This can be obtained from government-approved certifying agencies by submitting identification and address proofs.
Following the acquisition of DSCs, the next step is to apply for a Director Identification Number (DIN) for each individual who will serve as a director of the company. The DIN is a unique 8-digit identification number that is mandatory for anyone wanting to be a director in a company. The application for DIN is typically made online through the MCA portal by submitting the required forms and documents, including identity and address proofs.
Once the DSCs and DINs are in place, the next crucial step is to reserve a unique name for the proposed company. This is done using the RUN (Reserve Unique Name) facility available on the MCA portal. Applicants can propose up to two names in the RUN application, and the MCA will review these names to ensure they are unique and comply with the naming guidelines under the Companies Act, 2013. It is advisable to check the availability of the proposed name on the MCA website before submitting the RUN application to avoid rejection. The approved name is usually reserved for a period of 20 days, during which the other incorporation formalities must be completed.
The core of the company incorporation process involves filing the necessary documents with the MCA using the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form. This form is an integrated web form that offers various services related to company incorporation, including name reservation (through Part A) and incorporation application (through Part B). Part B requires the submission of detailed information about the company, such as its registered office address, details of the subscribers and directors, and the proposed capital structure. Along with the SPICe+ form, the Memorandum of Association (MOA) and Articles of Association (AOA) are crucial documents that define the constitution and internal rules of the company, respectively, and need to be drafted and uploaded. These documents must be digitally signed by the subscribers and directors using their DSCs.
Upon successful submission and verification of the incorporation documents, the MCA will issue the Certificate of Incorporation, which serves as official proof of the company’s legal existence. The MCA also typically issues the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) along with the Certificate of Incorporation. It is essential to have a registered office address for the company, and proof of this address, such as a utility bill or rent agreement, along with a No Objection Certificate (NOC) from the property owner if the premises are rented, needs to be submitted during the incorporation process. Ensuring all necessary documents are complete and accurate is crucial to avoid delays or rejection of the incorporation application.
Must Read: The Indian Startup Ecosystem: Laying the Foundation
Obtaining DPIIT Recognition: Benefits and Procedure
Once the business is legally incorporated, the next step for startups seeking to avail government benefits is to obtain recognition from the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India initiative. While the eligibility criteria for DPIIT recognition have already been discussed, the procedure involves a separate application process that is primarily conducted online through the Startup India portal and the National Single Window System (NSWS) portal.
The first step in obtaining DPIIT recognition is to create a profile on the official Startup India website: startupindia.gov.in. This involves registering with basic details about the founder(s) and the business, including the business name, stage of development (idea, MVP, early traction, scaling), industry sector, and startup activities. After creating a profile on the Startup India portal, the next step is to apply for DPIIT recognition through the NSWS portal. This can be initiated by selecting the “Apply for DPIIT Recognition” option on the Startup India portal, which redirects the user to the NSWS website. On the NSWS portal, the user needs to register as an investor (in this case, representing the startup) by providing basic details and verifying their account using OTPs.
After successful registration on the NSWS portal, the user needs to set up the entity information by entering key business details such as the entity type (Private Limited, LLP, etc.), PAN card number of the startup, registered and postal address, and authorized signatory details. Once the entity information is saved, the next step is to add ‘Registration as a Startup’ to the dashboard on the NSWS portal. This can be done by searching for “Registration as a Startup” under Centre Approvals > All Approvals and clicking “Add to Dashboard”.
From the dashboard, the user can then click on “Apply Now” to begin filling out the Startup Recognition application form. This form requires the submission of basic details about the business, including the sector and nature of work, along with a brief write-up explaining the innovation or scalability of the startup. Supporting documents that need to be uploaded include the Certificate of Incorporation, PAN of the entity, and optionally, a website link, pitch deck, or demo of the product or service. It is crucial to review all the information carefully before submitting the form as it cannot be edited once submitted.
After submitting the application, the status can be tracked in real-time from the NSWS dashboard. If the application is approved, a DPIIT recognition number will be generated, and the official Startup India Registration Certificate can be downloaded from the NSWS dashboard or accessed via DigiLocker. The typical processing time for DPIIT applications is around two to three weeks, provided all the documentation is in order. However, some approvals might be processed within two working days if the documents are complete and accurate. The agency evaluates the business based on its innovation and potential for scalability. It is important to note that there is no fee for DPIIT recognition; the entire process is free and paperless.
Essential Licenses and Permits for Startups in India
Beyond the basic incorporation and DPIIT recognition, startups in India may need to obtain various other licenses and permits to operate legally, depending on the nature of their business and the industry they are in. One of the most common requirements is Goods and Services Tax (GST) registration. If the annual turnover of the business exceeds the prescribed threshold (which varies based on the type of business and location), GST registration becomes mandatory. This registration allows the startup to collect GST on the supply of goods and services and to claim input tax credits. The GST registration process is primarily online and involves obtaining a GST Identification Number (GSTIN).
Depending on the specific industry, startups may also need to obtain sector-specific licenses and permits. For instance, businesses involved in food processing or handling will require an FSSAI (Food Safety and Standards Authority of India) license to ensure compliance with food safety regulations. Manufacturing units may need to obtain a manufacturing license from the relevant authorities, and businesses operating in commercial areas might require a trade license or a Shops and Establishments Act registration from the local municipal authorities. Startups in the pharmaceutical sector, financial services, or other regulated industries will have their own set of specific licensing requirements to adhere to. It is crucial for entrepreneurs to conduct thorough research to identify all the necessary licenses and permits applicable to their specific business activities and to initiate the application processes in a timely manner to avoid any legal hindrances to their operations.
Furthermore, startups need to be mindful of compliance with labor laws and environmental regulations. While recognized startups under the Startup India initiative may benefit from self-certification for certain labor and environmental laws, they are still expected to adhere to the basic provisions of these laws. This includes ensuring fair wages, safe working conditions, and compliance with environmental norms relevant to their industry. As the business grows and hires more employees, the scope of labor law compliance will also increase, necessitating a good understanding of the applicable regulations. Staying informed about the latest regulatory requirements and ensuring ongoing compliance is essential for the smooth and sustainable operation of a startup in India.
Must Read: Fueling Growth: Funding Your Startup Venture