Playbooks for every stage.

For a tech startup planning to raise external funding, a Private Limited Company is strongly preferred. Here's why:

• VC fundability: Almost all venture capital firms and angel investors invest exclusively in Pvt. Ltd. companies — LLPs cannot issue shares or ESOPs.
• ESOP issuance: Equity-based employee compensation is only possible in companies, not LLPs.
• FDI via automatic route: Foreign investment is easily permissible in Pvt. Ltd. companies under the auto route for most sectors.
• Startup India tax benefits: Income tax exemption under Sec 80-IAC and the angel tax exemption under Sec 56(2)(viib) are available only to companies.

Choose an LLP only if you are building a professional services firm (consultancy, law, audit) where you have no intent to raise institutional capital and prefer lower annual compliance costs.

There is no universally correct split, but a few principles guide healthy co-founder equity arrangements:

• Near-equal splits are often healthiest — large disparities create resentment and signal to investors that the founding team is not aligned.
• Differentiate by role contribution: Technical co-founder who builds the core product, CEO who raises capital, and domain expert who brings customers will each contribute differently. Factor in time commitment, prior contribution, and risk taken.
• Standard vesting: 4-year vest with a 1-year cliff is the global standard. This means no shares vest in the first year; 25% vest on the 1-year anniversary; the remainder vest monthly over 36 more months.
• Acceleration on exit: Consider single-trigger acceleration (company acquired → all shares vest) or double-trigger (acquisition + termination without cause → shares vest).

Example split for a 3-person founding team: 40% / 35% / 25% based on CEO, CTO, and domain expert roles — all subject to the same 4-year vesting schedule.

Mandatory GST registration triggers:

• Annual aggregate turnover exceeds ₹20 lakhs (₹10 lakhs in special category states)
• Any supply of goods or services across state lines (inter-state) — regardless of turnover
• E-commerce operators and online marketplace sellers — from Day 1
• Exporters of services or goods claiming input tax credit

Key returns for a startup (GSTR):

Many early-stage startups opt for voluntary registration from Day 1 to claim input tax credit (ITC) on software, office rent, and other purchases.

What is angel tax? When a company issues shares at a price exceeding their Fair Market Value (FMV), the excess amount is taxed as "income from other sources" at 30.9% in the hands of the company. This provision was originally meant to curb money laundering but impacted genuine startup fundraises when valuations exceeded FMV calculated by tax authorities.

2023 amendment — exemption for startups: The Finance Act 2023 extended the angel tax provisions to foreign investors as well, but DPIIT-recognised startups received a full exemption. To claim the exemption:

• Obtain DPIIT Startup India recognition (free, online at startupindia.gov.in)
• Apply for Section 56(2)(viib) exemption via the DPIIT / CBDT process (Form 2)
• Ensure total paid-up share capital + share premium does not exceed ₹25 crore post-issuance
• Investor must not be a Venture Capital Fund registered with SEBI (they are already exempt)

Once DPIIT-recognised and exemption is obtained, your startup can raise from angels at any valuation without angel tax applicability — a significant protection for pre-revenue funding rounds.

Foreign investment into Indian companies is governed by FEMA 20(R) — Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Key filings:

All filings are made through the company's Authorised Dealer Bank (AD Bank — your current account bank). Delays attract a compounding penalty at 2× the bank rate on the amount involved. File on time — Corpfy AI automates reminders and pre-fills FC-GPR data from your cap table.

ESOPs are taxed at two events — exercise and sale:

• At Exercise: Taxable as salary perquisite = (FMV on exercise date) − (exercise price paid). Employer must deduct TDS under Section 192.
• At Sale: Capital gains = (sale price) − (FMV on exercise date). Held >24 months → LTCG at 12.5%; else STCG at 20%.

Startup India Tax Deferment (Section 192(1C)): For employees of DPIIT-recognised startups, the perquisite tax at exercise is deferred — it is payable only when the earliest of these occurs:

• Shares are sold by the employee
• 5 years from the date of allotment
• Employee leaves the company

This deferment is a significant benefit — employees don't need to pay tax on paper gains when they have no liquidity. It makes your ESOP program far more attractive to top talent. Ensure your company maintains its DPIIT recognition status throughout the grant period to pass this benefit to employees.

India provides three routes for closing a company, depending on its financial position and creditor situation:

• Strike Off (STK-2) — Fast Track: Simplest route for companies with no liabilities and no operations. Board passes a resolution, files STK-2 with MCA, newspaper advertisement published, and the ROC strikes off the company in 3 – 6 months. Available only if company has been inactive for 2+ years or never commenced business.
• Voluntary Winding Up (Members' Voluntary Liquidation — MVL): Used when company is solvent — directors make a solvency declaration, a liquidator is appointed, assets are realised, liabilities paid, surplus distributed to shareholders. Timeline: 6 – 12 months. Tax-efficient distribution of assets.
• NCLT Winding Up / Insolvency (IBC 2016): Used when company cannot pay its debts. A resolution professional (RP) is appointed; creditors' committee drives the process. Either the company is rescued via a resolution plan or liquidated.

For most failed startups with no creditor disputes, the strike-off route (STK-2) is fastest and cheapest. Ensure all pending GST returns, ITR filings, and MCA forms are cleared before applying, or the application will be rejected.

Transfer pricing (TP) refers to the prices at which transactions occur between related parties in different countries. It becomes relevant to startups when:

• You set up a foreign subsidiary (e.g., a US Delaware entity) and the Indian entity provides software development services to it
• You receive payment from a foreign parent / group entity for services rendered in India
• You pay royalties or licence fees to a foreign related entity for IP usage

Key obligations under the Income Tax Act (Sections 92 – 92F):

• All international related-party transactions must be at Arm's Length Price (ALP)
• Maintain TP documentation if aggregate international transactions exceed ₹1 crore
• File Form 3CEB (TP Accountant's Report) along with ITR — due 31st October
• Master File (Form 3CEAA) and Country-by-Country Report (CbCR) for large multinationals

The most common TP method for software/IT services is the Transactional Net Margin Method (TNMM) — Indian entity earns a cost-plus mark-up (typically 15 – 25%) on operating costs. Structure this from Day 1 of a flip or parent-subsidiary arrangement to avoid retrospective adjustments.

A "flip" is the process of making a US entity (typically a Delaware C-Corp) the parent of your Indian operating company, primarily to raise capital from US VCs who prefer investing into US structures. Steps:

• Incorporate the Delaware C-Corp and issue shares to existing Indian founders in proportion to their Indian shareholding
• Transfer Indian company shares to the Delaware entity — founders exchange their Indian shares for Delaware shares (share swap)
• Indian company becomes a wholly-owned subsidiary (WOS) of the Delaware parent
• RBI compliance: The share swap must comply with FEMA — Form ODI (Overseas Direct Investment) must be filed; valuation by SEBI-registered merchant banker required
• Tax implications: The share swap is treated as a transfer under Indian tax law — capital gains may arise. Seek advance ruling or tax planning advice before executing

Flips are best done before raising any external capital — they become increasingly complex and tax-expensive as the company valuation rises. If you plan to raise from US-based VCs, discuss the flip structure with a cross-border tax attorney before your first external funding round.

Eligibility criteria:

• Incorporated as Pvt. Ltd., LLP, or Registered Partnership Firm
• Not more than 10 years from date of incorporation
• Annual turnover has not exceeded ₹100 crore in any financial year
• Working towards innovation, development, or improvement of products / services / processes

Benefits of DPIIT recognition:

• Income Tax exemption: 3 consecutive years out of 10 under Section 80-IAC (profits fully exempt)
• Angel tax exemption: No angel tax on investments from domestic and foreign investors (Section 56(2)(viib) exemption)
• ESOP tax deferment: Tax on employee ESOPs deferred until exit / sale
• Fast-track patent: 80% rebate on patent filing fees; fast-track examination
• Government procurement: Exemption from prior turnover / experience criteria for public procurement
• Easy winding up: Eligible for fast-track exit under IBC (90-day process)

How to apply: Visit startupindia.gov.in → Register as a user → Select "Get DPIIT Recognition" → Fill the online form → Upload COI, pitch deck / innovation description → Submit. Approval is typically within 2 – 5 working days and is free of cost.