Incorporating a Company in India — A Practical Guide for Tech SMEs

This article has been authored by Adv. Siddhant Jain.

Hello founders and business owners — if you want to incorporate a company in India, this is the single most practical guide you’ll read before you take the plunge. Incorporation is far more than ticking a regulatory box: it creates your company’s legal identity, builds credibility with banks, customers and investors, unlocks hiring and contracting channels, and lays the foundation for protecting your intellectual property and growth capital. The right choice of entity, properly drafted constitutional documents and early compliance steps protect value for founders and make future fundraising, exits and cross-border operations far smoother.

This guide walks you step-by-step through choosing the right structure for a tech SME, the resident-director requirement, preparing MoA and AoA tailored for SaaS/AI ventures, the SPICe+ single-window incorporation process, and essential post-incorporation work — from ESOPs, payroll and IP assignment to GST, audits and FDI reporting. You’ll also find practical checklists, common legal pitfalls (and how to avoid them), realistic timelines and cost considerations so you can plan operations and cash flow without surprises.

Whether you’re launching a development hub, localising a product for Indian customers, or establishing a fundraising-ready subsidiary, this guide gives you the legal and operational roadmap to incorporate the right way — protect founder equity, secure your IP, and keep your business compliant as you scale. Read on for the detailed, actionable checklist and document templates that let you get started immediately.

 Key Takeaways— Three essentials

1. India is an attractive incorporation target for tech SMEs because of depth of talent, large digital markets and generally liberal FDI rules for IT/software.
2. The Private Limited Company is the default vehicle for startups: simple governance, limited liability, investor-friendly share structures and straightforward fundraising.
3. Incorporation is largely digital through SPICe+ (single-window filing). After incorporation you must prioritise employment compliance (PF/ESI/shops), IP assignment, tax registrations and robust corporate governance.

Why tech SMEs incorporate in India

If you want to incorporate in India, consider three strategic benefits:

• Talent & operating cost: India offers large pools of software engineers and product talent at competitive cost — useful for building development hubs or cost-effective product teams.
• Market & distribution: Rapidly expanding domestic digital consumption offers a large addressable market for SaaS, consumer apps and B2B platforms.
• Regulatory friendliness for IT: Software and IT services typically permit 100% foreign direct investment under the automatic route — reducing entry friction for foreign founders.

Local incorporation also eases contracting (local T&Cs and GLs), bank KYC for a corporate account, hiring compliance and IP enforcement.

Who can set up a company in India — practical eligibility

• Foreign nationals & foreign entities: Can incorporate Indian companies. In practice, foreign promoters commonly incorporate a Private Limited Company or form a branch/liaison if they do not want a separate legal person. For most IT/software sectors, 100% FDI is allowed on the automatic route (i.e., no prior government approval).
• One Person Company (OPC): Reserved for Indian citizens who are residents; foreign nationals and non-resident Indians generally cannot form an OPC. If you were considering OPC to simplify governance, you cannot use it for a foreign-owned subsidiary.
• Public company & other forms: Possible but carry higher compliance and disclosure obligations; rarely suitable for early stage SMEs.

Practical tip: choose a Private Limited Company unless you need public listing features right away.

Choosing the company structure — what to pick and why

Private Limited Company

• Minimum: 2 directors, 2 shareholders (one director must meet the Indian resident-director residency test — see below).
• Ownership & governance: Shares are privately held — you can put in shareholder agreements, vesting, and share transfer restrictions. Great for ESOPs and investor rounds.
• Capital: No statutory minimum paid-up capital but banks and investors will ask for a reasonable initial capital and proof of funds for KYC.

OPC (one-person)

• Quick to form but limited to Indian resident natural persons — not available to foreign founder teams.

Public limited company

• Use only if you intend to raise public capital or have a very large investor base — heavier compliance and listing rules apply.

Resident director requirement — a critical compliance point

Under Section 149(3) of the Companies Act, every company must have at least one director who has stayed in India for not less than 182 days. Failure to meet the residency requirement risks RoC non-compliance and bank/KYC complications.

Practical options if you don’t have a local founder:

• Appoint a vetted professional (nominee director) with a clear written services/indemnity agreement limiting authority — but avoid giving them unfettered powers.
• Appoint an early hire or local director who satisfies the residency test.
• Use a corporate service provider to handle routine governance, but don’t rely on them as a permanent substitute for a resident director.

Caution: nominee director arrangements must be documented carefully (powers, indemnities, confidentiality, exit mechanics) — banks often interrogate such arrangements during KYC.

The incorporation process — end-to-end

India uses a largely online, single-window process called SPICe+ (INC-32) that bundles key registrations. Below is each step with documents and practical notes.

Step 1 — Reserve your company name (SPICe+ Part A / RUN)

• File SPICe+ Part A or use RUN service. You may propose alternate names; choose names that are distinctive and avoid words needing regulator clearance (e.g., “bank”, “insurance”, “stock exchange” etc.).
• Avoid names that are visually or phonetically similar to existing companies or trademarked brands — RoC/Trademark office can object.

Timing: name reservation can be immediate to a few days depending on objections.

Step 2 — Gather pre-incorporation documents (practical checklist)

For each proposed director & subscriber:

• Digital Signature Certificate (DSC): mandatory for signing electronic forms. Obtain from a licensed certifying authority.
• Identity proof: passport (foreign directors) / PAN or Aadhaar (Indian residents). Foreign nationals must provide notarised or apostilled copies as required.
• Address proof: recent utility bill / bank statement / driving licence. Foreign directors: notarised + apostille where applicable.
• Registered office proof: lease deed, utility bill, or ownership documents. If the premises are rented, upload a NOC from the landlord.
• DIN: if the director does not have a DIN, SPICe+ provides a route for first-time directors to obtain one during incorporation.

Practical tip: get all foreign documents legalised early — apostilles/notarisation can create delays.

Step 3 — Draft Memorandum of Association (MoA) & Articles of Association (AoA)

MoA (must-have clauses):

• Name clause (company ends with “Private Limited” where required).
• Registered office clause (state & city).
• Object clause (carefully drafted — company cannot conduct activities outside stated objects). Consider a broad, business-friendly objects schedule for tech firms (e.g., “research and development, development and supply of software, SaaS, licensing, digital services, training and consultancy”).
• Liability clause (limited liability).
• Capital clause (authorized share capital and subscriber details).
• Subscriber clause (founders, initial share split).

AoA (governance):

• Board meeting norms, quorum, director powers.
• Share transfer restrictions (pre-emptive rights, right of first refusal).
• ESOP rules and vesting mechanics.
• Dividend & quorum rules, dispute resolution mechanisms, indemnities for directors.

Practical drafting points:

• Draft AoA to reflect investor preferences (tag/drag rights) if you intend to raise VC.
• Build in IP assignment clauses or reference separate employee IP assignment templates.

Step 4 — File SPICe+ and supporting forms

What SPICe+ bundles: incorporation, DIN allotment, PAN & TAN application, and optional GST/EPFO/ESIC registrations and state-level professional tax registration. It can also integrate with select banks to speed up opening a corporate account.

Typical uploads required:

• Signed MoA & AoA (digital signatures).
• Director identity and address proofs (notarised/apostilled for foreigners).
• Registered office proof and NOC (where relevant).
• Declaration by subscribers and first directors (Form INC-9 / DIR-2 etc).
• Consent to act as director (DIR-2) and disclosure of DIN (or application for DIN).

Practical note: RoC may raise queries seeking clarifications — respond promptly.

Step 5 — Receive Certificate of Incorporation & registrations

Once RoC approves:

• You receive Certificate of Incorporation (COI) and CIN.
• PAN & TAN are processed and issued (if applied through SPICe+).
• You may get registration acknowledgements for GST/EPFO/ESIC if applied. c

You can now: open a corporate bank account, start formal hiring, enter into contracts and apply for government recognitions (eg. DPIIT/Startup India).

Timing: typically several days to a few weeks depending on: accuracy of documents, foreign document legalisation, RoC workload, and bank KYC.

Post-incorporation obligations & operational checklist (detailed)

Incorporation is the start — here’s a prioritized checklist for an operating tech company.

1) Corporate Compliances (first 30–90 days)

• Appoint statutory auditor within 30 days (or as per the law).
• Issue share certificates to subscribers and file allotment with RoC (SH-4, PAS-3 depending on capital structure).
• Convene first board meeting to approve bank signatories, auditors, ESOP plan, appointment letters and start fiscal year planning.

2) Employment & HR compliance

• EPF & ESIC registrations where applicable (thresholds apply).
• Shops & Establishment registration (state specific) — usually needed within 30–60 days of opening.
• Draft offer letters, employment agreements, contractor agreements, with strict IP assignment and confidentiality clauses. Use probation & notice periods that match business needs but comply with statutory minima.

Practical tips: include freelancer/contractor IP assignment before any development work begins. Keep evidence of salary payments and HR policies for audits/disputes.

3) ESOPs and capitalization

• Draft ESOP documents, board/ shareholder approvals and comply with Section 62 (issue of shares) and applicable tax withholding rules on perquisites at exercise/time of sale. Tailor vesting and exit mechanics.
• Maintain a cap table from day one.

4) Tax & statutory filings

• File AOC-4 (financial statements) and MGT-7 (annual return) on MCA yearly.
• GST: SaaS and B2B supplies typically attract GST; register where taxable supplies are made. Seek specialist tax advice for cross-border supplies (export vs local supply classification).
• Corporate tax planning: corporate tax rates depend on the route, turnover and whether concessional regimes apply — take early tax advice.

5) FDI & RBI reporting

• Report foreign investments via RBI/FIRMS/Single Master Form as required and maintain records of foreign remittances and share purchase agreements.

6) IP, contracts & financial controls

• Use employment IP assignment, contractor agreements, NDAs and clear licensing terms for third-party code.
• Put in place intercompany agreements (services, cost-plus/TP models) with documentation to defend transfer-pricing positions.
• Set director signing limits, monthly P&L reviews and bank reconciliation processes.

Common legal pitfalls — and how to avoid them

1. No employee IP assignment → developers may claim rights. Fix: mandatory IP assignment in offer letter and contractor MOUs.
2. Weak ESOP documentation → tax shock at exercise. Fix: standard ESOP plan + legal & tax briefing for recipients.
3. Unclear transfer pricing and related party deals → audit exposure. Fix: documented cost models, benchmarking and annual compliance.
4. Resident director & KYC gaps → bank account or RoC objections. Fix: ensure at least one director meets 182-day rule and keep proof of stay and address.
5. Delayed statutory filings → penalties and reputational damage. Fix: appoint compliance owner (in-house or outsourced) and calendar reminders.

Final thoughts

Incorporation in India is straightforward if you prepare the right documents and anticipate the resident-director and foreign-document legalisation issues. For tech SMEs, your early legal & operational investments should prioritise IP assignment, ESOP clarity, employment compliance, and tax/FDI reporting discipline. These steps protect value for founders and investors while keeping operations scalable.

Action to be Taken

Don’t let incorporation pitfalls derail your growth. Get your incorporation paperwork, resident-director plan, IP assignments and ESOP framework reviewed now so you can open a bank account, hire, and raise funds without surprises. Book a call with me to get a customised incorporation checklist, document review and a step-by-step timeline tailored to your tech SME.

“Click here to Book a Call with me”

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Siddhant Jain

Meet Siddhant Jain — a lawyer who thrives in the dynamic world of Business & Commercial Law, Private Client Practice, and Maritime Matters. For him, boardrooms are battlefields, mergers are puzzles, and corporate jargon is a second language. Whether it’s navigating the maze of company law, tackling securities regulations, steering businesses through the stormy seas of bankruptcy and insolvency, or handling complex maritime disputes, Siddhant has done it all.

Beyond the corporate hustle, Siddhant also works closely with private clients — advising on wills, Trust, family settlements, agreements, and bespoke legal strategies to safeguard both business and personal interests.

From drafting intricate legal opinions on mergers to guiding company closures, and from advising shipping stakeholders to assisting families in succession planning, his practice spans a diverse legal spectrum. And when he’s not solving legal riddles, Siddhant shares his insights through newsletters and publications — because why should only his clients benefit from all that knowledge?

If you’re looking for someone who can untangle the knots of business law, safeguard your personal matters, or help you sail through maritime complexities (with a touch of humor along the way), Siddhant’s your guy.

📩 Reach him at siddhantjain2403@gmail.com