Why Tech SMEs Are Incorporating in India
India has become a go-to destination for international expansion among software, SaaS, and AI startups. The reasons are compelling:
- Access to a large pool of highly skilled and affordable tech talent.
- A massive and fast-growing domestic digital market.
- Full foreign ownership allowed in most sectors.
- Supportive government policies, including tax incentives and fast-track registration under the Startup India initiative.
Incorporating a private limited company in India also builds long-term local credibility—important when hiring, opening bank accounts, signing contracts, or attracting investors.
Who Can Set Up a Company in India?
Foreign Ownership & FDI Rules
Most sectors, including software and IT services, allow 100% foreign direct investment (FDI) under the automatic route—no prior government approval needed. However, sectors like defense, telecom, or media may have sectoral caps or require approvals.
Company Structures
Private Limited Company (Pvt Ltd): The most suitable structure for tech startups.
- Requires a minimum of 2 directors (one must be a resident of India) and 2 shareholders.
- There is no minimum capital requirement.
- Shares are privately held and are not freely transferable, making it ideal for close-knit startup ownership.
One Person Company (OPC)
- Suitable only for Indian resident entrepreneurs.
- Not available for foreign SMEs, as only Indian citizens can incorporate OPCs.
Public Limited Company
- Requires 7 shareholders and higher compliance.
- Generally not suitable for early-stage SMEs.
Indian Resident Director Requirement
According to Section 149(3) of the Companies Act, 2013, at least one director must have resided in India for 182 days or more during the financial year. If your company doesn’t yet have a trusted partner in India, vetted professionals can serve as nominee directors during the incorporation stage.
Step-by-Step Incorporation Process
Incorporation is now mostly online through the Ministry of Corporate Affairs (MCA) via the SPICe+ portal, streamlining multiple registrations in one place.
Step 1: Reserve a Company Name
Use the SPICe+ Part A form or RUN (Reserve Unique Name) service.
Name rules under the Companies Act:
- Must be unique and not identical or similar to existing company names or trademarks.
- Translations, slight spelling changes, or adding generic terms (e.g., "solutions", "tech") to an existing name are not acceptable.
- Certain words like “bank,” “exchange,” or “insurance” require additional approvals from regulators like RBI, IRDAI, or SEBI.
Note: You can propose up to two names in SPICe+ Part A.
Step 2: Gather Pre-Incorporation Documents
Before filing, prepare and verify the following documents:
- Digital Signature Certificate (DSC):
- Required for all proposed directors and subscribers to electronically sign incorporation documents.
- Must be obtained from a government-authorized Certifying Authority.
- Foreign directors must submit notarized or apostilled identity and address proof (e.g., passport and utility bill).
- Director Identification Number (DIN):
- Required for anyone intending to become a director.
- Can be obtained through SPICe+ if the person is being appointed as a first-time director.
Step 3: Prepare MoA and AoA
Memorandum of Association (MoA)
Defines the scope and identity of the company. It includes:
- Name Clause: Legal name of the company with “Private Limited” at the end.
- Registered Office Clause: Location of the company’s registered address.
- Object Clause: Details of the company’s intended business activities.
- Important: The company cannot legally undertake activities not mentioned in this clause.
- Liability Clause: States that the liability of shareholders is limited.
- Capital Clause: Authorized share capital and the number of shares each shareholder subscribes to.
- Subscriber Clause: Lists the initial subscribers (founders) with their shareholding and consent.
For OPCs, the MoA must include the nominee’s name who will take over in case of the founder’s death or incapacity.
Foreign nationals signing must have their documents notarized or apostilled, depending on the country.
Articles of Association (AoA)
Outlines the internal governance rules:
- Roles and responsibilities of directors and officers.
- Procedures for board meetings and shareholder resolutions.
- Share transfer restrictions (especially relevant for Pvt Ltd).
- Provisions for issuing additional shares, handling disputes, and ESOPs (Employee Stock Options).
Step 4: File the SPICe+ Web Form
SPICe+ (INC-32) combines multiple services in a single form:
- Company incorporation
- DIN allotment
- PAN & TAN application
- GST, EPFO, ESIC registration
- Professional Tax registration (for certain states)
- Bank account opening (through pre-integrated partner banks)
Required uploads include:
- MoA and AoA
- Notarized passport and address proof for foreign directors
- Proof of registered office address (e.g., lease deed, utility bill)
- NOC from property owner, if applicable
Step 5: Receive Certificate of Incorporation
Once approved by the Registrar of Companies (RoC), you will receive:
- Certificate of Incorporation (COI)
- Permanent Account Number (PAN)
- Tax Deduction and Collection Account Number (TAN)
- Corporate Identification Number (CIN)
You are now legally authorized to operate in India, open a corporate bank account, and hire employees.
Timeline: Typically 3–6 weeks
Estimated Cost: USD $7,000–15,000 (including professional service provider fees)
Post-Incorporation Considerations for Tech Startups
Incorporating is just the beginning. Running a tech subsidiary in India involves hiring, HR compliance, tax and legal filings, and operational safeguards.
Hiring & Employment Compliance
Key labor laws to follow:
- Shops & Establishments Act (state-specific)
- EPF & ESI registration for social security and health benefits
- Gratuity Act, Maternity Benefit Act, Code on Wages
Employer responsibilities:
- Clearly defined offer letters and employment contracts
- Competitive compensation structures with base salary, bonuses, PF, FEP
- Notice periods (30–90 days), fair termination clauses
Use localized contracts and handbooks to protect against disputes. Trustiics can help draft these documents.
Recruiting Tips for Tech SMEs
India’s tech job market is highly competitive, especially for skilled developers, engineers, and product managers. Here’s how to hire effectively:
- Leverage local hiring platforms like LinkedIn, Naukri, and Instahyre for sourcing mid- to senior-level candidates.
- Anticipate counteroffers—job-hopping is common in the tech sector, so prompt communication and a strong value proposition are key.
- Issue formal appointment letters in compliance with Indian labor laws. Some states may also require registration under local Shops & Establishments Acts.
- Consider campus recruitment if you're scaling quickly—partnering with top engineering colleges can help secure early-career talent.
Regulatory & Tax Compliance
Annual MCA Filings:
- AOC-4 (financials)
- MGT-7 (annual return)
- Hold quarterly board meetings and an AGM
Statutory Audits:
- Appoint an auditor within 30 days
- Even non-revenue companies must comply
Tax Compliance:
- PAN and TAN obtained at incorporation
- Corporate Tax: 15% or 25% depending on nature and revenue
- GST: Mandatory for SaaS companies providing B2B services—even at low revenue levels
FDI Reporting to RBI via FIRMS portal and Single Master Form
State-specific Licenses: Shops & Establishment certificate required in most cases
Legal Risk & Operational Oversight
Foreign tech SMEs often face:
- Poor IP assignment from employees
- Non-arm’s length intercompany transactions (triggering transfer pricing issues)
- Currency repatriation delays
- Non-compliant HR policies
Best practices include:
- Use R&D and IP assignment agreements to retain IP globally
- Appoint a compliance officer or service provider for ongoing filings
- Monitor finances monthly and set director limits
- Sign intercompany contracts using cost-plus models to withstand audits
Final Thoughts
Incorporating a company in India can be a strategic move for global tech SMEs looking to expand into one of the world’s most dynamic digital markets. While the regulatory landscape may seem complex, having a clear roadmap—from choosing the right structure and drafting key documents to understanding labor and compliance obligations—can make all the difference.
This guide is meant to help tech founders and SME executives make informed decisions, minimize risk, and plan for long-term success in India. Whether you're setting up a development hub, localizing your product, or preparing to serve Indian customers, incorporating the right way is your first step to building a sustainable and compliant business presence.