Module 2:

Legal procedures for starting a

business

Dr. Bharat Chillakuri

February 19, 2021
 Course Outline
1. Formalities for starting a company
2. Certification of incorporation
3. Steps to be taken to incorporate a new company
4. What exactly is a startup?
5. Startup eligibility
6. Benefits of startup registration
 Formalities for starting a company
1. Incorporation of a business entity – Decide the type of
organization/entity
2. Have a contract in place (founders/partners)
3. Obtain the required registration
4. Trademark your brand (trade name, logo, tag line)
5. Organize your finance systems (Auditing, Accounting,
Taxation)
6. Create Business Policies (Marketing, IT, HR, Code of
Conduct, Privacy)
 Certification of Incorporation
A Certificate of Incorporation (or Letter of Incorporation) is a legal
document issued by Ministry of Corporate Affairs to a company in India
once they are successfully registered with them. This certificate is proof
that the company is registered with the Registrar of Companies.

Steps to register your company:

1. Acquire Digital Signature Certificate (DSC)
2. Acquire Director Identification Number (DIN)
3. Finding an eForm or New user registration
4. Incorporate the company

Note: All the forms required for registering your company are available on
the website – Ministry of corporate affairs (MCA) –
http://www.mca.gov.in/
http://www.mca.gov.in/MinistryV2/applyfordin.html
http://www.mca.gov.in/MinistryV2/companyformsdownload.html
 DIN and DSC
Director Identification Number (DIN):
• Any person (not having DIN) proposed to become a first director in a
new company shall have to make an application through eForm
SPICe (Simplified Proforma for Incorporating Company
Electronically).
• The applicant is required to attach the proof of Identity and address
along with the application.
• DIN would be allocated to User only after approval of the form.

Digital Signature Certificate (DSC)

• The Information Technology Act, 2000 has provisions for use of Digital
Signatures on the documents submitted in electronic form in order to
ensure the security and authenticity of the documents filed
electronically.
• This is secure and authentic way to submit a document electronically.
As such, all filings done by the companies/LLPs under MCA21 e-
Governance programme are required to be filed using Digital
Signatures by the person authorised to sign the documents.
Corporate Identity Number (CIN)

A Certificate of Incorporation (or

Letter of Incorporation) is a
legal document that is issued
by Ministry of Corporate Affairs
to a company in India once they
are successfully registered
with them.

This certificate is proof that the

company is registered with the
Registrar of Companies.
Steps To Be Taken To Incorporate A New
Company
• Check if company name is available on
http://www.mca.gov.in/mcafoportal/showCheckCompanyName.do
• Ensure that the name does not resemble the name of any other already
registered company
• Apply to the concerned RoC to ascertain the availability of name in
eForm1 A by logging in to the portal. A fee of Rs. 500/- has to be paid
alongside and the digital signature of the applicant proposing the
company has to be attached in the form.
• After the name approval the applicant can apply for registration of the
new company by filing the required forms (that is Form 1, 18 and 32)
within 60 days of name approval
• Declaration of compliance - Form-1
• Notice of situation of registered office of the company - Form-18.
• Particulars of the Director's, Manager or Secretary - Form-32.
 Foreign companies in India

• Any foreign company can establish its place of business in India by filing
eForm FC-1 (Information to be filed by foreign company).
• The eForm needs to be digitally signed by 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.
What exactly is a startup?
Steps to be taken to incorporate a Startup

• A startup defined as an entity that is headquartered in India, which was

opened less than 10 years ago, and has an annual turnover less than
₹100 crore (US$14 million).

Under the Startup India initiative, eligible companies can get

recognised as Startups by DPIIT (Department for Promotion of
Industry and Internal Trade), in order to access a host of tax benefits,
easier compliance, IPR fast-tracking & more.

https://www.startupindia.gov.in/
Unicorns (as of 2020)
 Startup Eligibility

• The firm has to be a private limited company or a limited liability

partnership
• The company remains a startup for the first ten years, post the date of
registration.
• The company remains a startup if the turnover per year does not cross
the Rs 100 crore mark in any of the 10 years.
• The firm should have approval from the Department of Industrial Policy
and Promotion (DIPP)
• The firm should be funded by an Incubation Fund, an Angel Fund or a
Private Equity Fund
• A patron guarantee from the Indian Patent and Trademark office is
necessary
• You must have a recommendation letter by an incubation
• The firm must come up with innovative ideas and schemes
• All the details regarding the funding must be registered with SEBI
(Securities and Exchange Board of India)
 Eligibility Non Eligibility

• Private limited company/ • Sole Proprietorship

Registered Partnership firm • Company is older than 10
• Limited liability partnership years
• Turnover should be less • annual turnover exceeds
than INR 100 Crores INR 100 crores
 Procedure for registering a startup

Step 1: Incorporate your business

Step 2: Register under Startup India
Step 3: Documents you need to upload in a PDF format only
Step 4: You need to mention if you need tax exemption.
Step 5: Self-certification of the following conditions
Step 6: Get your recognition number
https://www.startupindia.gov.in/content/sih/en/about_startup_portal.html
 Startup India Action plan (2016)

1. Simplification and Handholding.

2. Funding Support and Incentives.
3. Industry-Academia Partnership and Incubation.
Benefits of Startup India Registration

1. Tax Exemption
2. Tender Participation
3. Govt. Funding Opportunity
4. Participate in various Govt. Scheme
5. Participate Startup Grand Challenges/Competitions
6. IPR Govt. Fee Concession
7. Self Certifications
8. Easy Winding up
9. Connect Networks
10. GEM Portal Seller Registration and Bid
Certifications / Licenses required for startup

1. TAN (Tax Collection & Deduction Account Number)

2. GST Registration
3. Shops & Establishment License (Commercial establishments)
4. Central Excise License
5. Importer Exporter Code
6. Professional Tax
7. Employee Provident Fund Registration
8. Employee State Insurance Registration (ESI)
9. Zonal Permits
10. Fire Department, Air and Water Pollution Control Permit
11. Health Department License
 Concession regarding Labour Laws

Start-ups can furnish self-declaration for compliance of nine labour

laws for the first year from the date of starting the start-up, no
inspection under these labour laws, wherever applicable, will take
place. The Labour Laws to be covered under this are:
1. The Building and Other Constructions Workers’ (Regulation of
Employment and Conditions of Service) Act, 1996
2. The Inter-State Migrant Workmen(Regulation of Employment and
Conditions of Service) Act, 1979
3. The Payment of Gratuity Act, 1972
4. The Contract Labour (Regulation and Abolition) Act, 1970
5. The Employees’ Provident Funds and Miscellaneous Provisions Act,
1952
6. The Employees’ State Insurance Act, 1948

From the second year onwards, up to 5 years from the setting up of the
units, such start-ups are required to furnish self-certified returns and
would be inspected only when credible and verifiable complaint of
violation is filed in writing and approval has been obtained from the higher
authorities.
 Tax Exemptions
• Post getting recognition a Startup may apply for Tax exemption under
section 80 IAC of the Income Tax Act.
• For Tax exemption, the Startup can avail tax holiday for 3 consecutive
financial years out of its first ten years since incorporation.

Eligibility Criteria:

• The Startup should be incorporated as a private limited company or

registered as a partnership firm or a limited liability partnership

• Turnover should be less than INR 100 Crores in any of the previous financial
years

• An entity shall be considered as a startup up to 10 years from the date of its

incorporation

• The Startup should be working towards innovation/ improvement of existing

products, services and processes and should have the potential to generate
employment/ create wealth.
• An entity formed by splitting up or reconsutrctuon of an existing business
shall not be considered a "Startup"