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What Are The Major Formalities For Setting Up A Startup in India

20, March 2017 | Admin

Settingup a new business sounds very simple. However, you must remember that you wouldneed to go through a certain process to setup a startup business in India.Hereare some of the major formalities and steps you must know to set up a startupin India:

Thefirst thing that you must think of the moment you decide to set up a startupin India is the legal status. You need to finalise on whether you want itto be a proprietary firm, partnership firm, LLP, or a private/public limitedcompany. Please note that your decision on the legal status will depend onvarious factors.

Proprietary startup

Ifhave think you are ready with the initial capital required for the startup andare not comfortable sharing ownership or stake given the small size of yourbusiness, you can have a proprietary firm.In case of proprietary firm, you justneed to name your business and use your PAN account as business owner (applyfor PAN in case you don't have one) to open a bank account in the firm's namewith you as the proprietor.Next,you need to obtain all other kinds ofpermissions and licenses such as service tax registration, VAT, sales taxregistration, and TAN, as required, in the name of the business and commenceoperations as a startup.

LLPs or Partnership firm startups

Incase there are more than two or three people who want to set up a startup inIndia together while having limited liability for each partner, LLP is the bestway forward. However, if it is a family business and the partners are notworried about unlimited liability for each to share, you can start atraditional partnership firm. The legal requirements for LLP or partnershipfirms remain the same as mentioned above for sole-proprietorship concern interms of bank account, service tax registration, and other formalities.

Company startups

However,if you want to raise capital from people who may necessarily not be yourbusiness partners or might not run the business with you, then you must form alimited company registered under the Indian Companies Act. It can be a privateor public limited company. In case of public limited company, it can be aclosely held company or a listed company. The criteria to decide the type ofcompany depends on the amount of capital you need for your startup or dependingon the size of your business.

Ifyou have decided to form a private limited company, the first step is to decidethe company's name and register the name with the Registrar of Companies (ROC) providingthem with 4-5 choices. Once the ROC communicates the availability of namewithin 3-5 working days, you must prepare a Memorandum of Association (MOA) andArticles of Association (AOA). MOA will lay down the objectives behind formingthe company, which will include prime objectives and other objectives that thecompany may pursue later.AOA will define the way you run your business. Most ofthe provisions of AOA are listed in the Indian Companies Act, 2013.Once ready,you need to file the MOA and AOA with the ROC along with certain formspertaining to the directors and the registered office. The directors mustobtain a Director Identification Number (DIN) and must possess digitalsignatures.Within 7-10 working days of filing of all these documents with theROC you would get your registration certificate. This becomes the majordocument or almost a birth certificate of this company.

Nextstep involves receiving the certificate of incorporation. Once you have yourregistration certificate, incorporation certificate, MOA, and AOA, you canapply for Income Tax PAN account in the name of your startup company. Once youhave the company's PAN account, you are all set open your company's bankaccount. Once these steps are complete, you are ready to get all other vitalregistrations such as service tax, sales tax, shop and establishment, exciseduty, TAN, and VAT to commence your startup's operations.On the sidelines, youmust be ready with your company's letterheads, stamps, and business cards toavoid any further delays.

Toknow more about VC funding, setting up a startup in India, hedge funds, andother AIFs, call us on 022-28577647 or visit us at www.altsmart.in

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