Common Fundraising Compliance Mistakes in India and How to Avoid Them

Jul 28, 2025
Private Limited Company vs. Limited Liability Partnerships

Fundraising is a defining milestone that often shapes a startup's future. For founders in India, securing external funding can unlock new markets, accelerate product development, and attract the right talent. But in the race to pitch to investors and close deals, many founders tend to sideline one crucial aspect: compliance.

Investors today conduct rigorous due diligence before committing funds. A single compliance gap can trigger red flags, delay funding, or worse—lead to deal cancellations. Moreover, non-compliance can expose your startup to penalties, regulatory scrutiny, and reputational damage that could hinder future fundraising efforts.

This blog sheds light on some of the most common fundraising compliance mistakes founders in India make and practical ways to avoid them.

Table of Contents

Lack of a Clear Value Proposition

A strong value proposition is the foundation of any successful fundraising pitch. Yet, many founders struggle to explain what truly sets their startup apart. VCs in India often report that over 60% of the pitches they reject fail at this first hurdle. Investors aren't just backing ideas—they're investing in solutions that address real market needs with a clear, defensible growth path.

The Impact:

  • A weak or generic value proposition makes it hard for investors to see the potential for a 10x-100x return on investment.
  • It raises doubts about the founder’s understanding of the market. An average investor spends less than three minutes reviewing a pitch deck; a confusing message means instant rejection.

How to Avoid It:

  • Articulate your Problem-Solution Fit: Quantify the problem. Instead of "we help SMEs digitize," say "we help India's 63 million SMEs reduce their average monthly accounting overhead by 30%."
  • Highlight Unique Differentiators: Is it your proprietary tech, an exclusive partnership, a revolutionary business model (e.g., unique GTM strategy for Tier-2/3 cities), or a founding team with deep domain expertise from a relevant unicorn?
  • Keep it Concise: Practice a 30-second elevator pitch that clearly states the problem, solution, target market, and secret sauce.

Underestimating Market Size and Competition

Many founders present overly optimistic market size estimates, often citing a massive, irrelevant TAM. Investors quickly pick up on these gaps, which signal poor research and a weak business strategy.

The Impact:

  • Claiming the entire $150 billion Indian retail market for a niche D2C fashion brand erodes credibility instantly.
  • Ignoring direct and indirect competitors shows a lack of preparedness. An investor will likely know the competitive landscape better than you.

How to Avoid It:

  • Use Credible Data: Back your market estimates with data from sources like NASSCOM, Bain & Company, Inc42, Tracxn, or government reports (e.g., Economic Survey of India).
  • Present a Clear TAM, SAM, SOM:
    • Total Addressable Market (TAM): The total market demand (e.g., The entire Indian EdTech market, valued at $29 billion by 2030).
    • Serviceable Available Market (SAM): The segment you can target (e.g., K-12 test prep market in India, estimated at $10 billion).
    • Serviceable Obtainable Market (SOM): What you can realistically capture in 3-5 years (e.g., 1-2% of the SAM, representing a $100-$200 million revenue opportunity).
  • Showcase Competitive Analysis: Create a competitive matrix that maps key players against features, pricing, and market share. Clearly articulate your unique edge.

Insufficient Due Diligence on Investors

In the rush to secure funding, many startups forget that an investor-founder relationship is a long-term partnership, often lasting 7-10 years. Not every investor is the right fit for your business.

The Impact:

  • Misaligned goals can lead to conflict. An investor seeking a quick 2-year exit will clash with a founder building for long-term market leadership.
  • Some investors carry reputational risks or have a portfolio full of conflicting companies, which can harm your business.

How to Avoid It:

  • Research Investor Portfolios: Use platforms like Tracxn or Crunchbase to see their past investments, sector focus, typical cheque size, and involvement level.
  • Conduct "Reverse Due Diligence": Talk to at least 2-3 founders from their portfolio. Ask about their experience, the value-add beyond capital, and how the investor behaves during challenging times.
  • Ensure Vision Alignment: Discuss your long-term vision, potential exit scenarios, and governance expectations before signing the term sheet.

Poor Financial Projections

Financial projections aren’t just numbers on a slide—they're a reflection of your business acumen. Investors expect thoughtful, data-driven projections that are realistic and achievable.

The Impact:

  • Projecting 100% month-on-month growth for 36 months without validated unit economics (CAC, LTV) is a major red flag.
  • Unrealistic forecasts that show profitability in six months for a deep-tech R&D startup diminish trust in your planning abilities.

How to Avoid It:

  • Build Bottom-Up Projections: Base your forecasts on key drivers: marketing spend, conversion rates, sales team efficiency, production capacity, and churn rates.
  • Show Key Metrics: Clearly state your assumptions for Customer Acquisition Cost (CAC), Lifetime Value (LTV), Churn Rate, and Monthly Burn Rate. A healthy LTV/CAC ratio (ideally >3:1) is a strong positive signal.
  • Present Scenarios: Show a baseline (most likely), an optimistic, and a conservative case. This demonstrates strategic thinking.

Ignoring Legal and Regulatory Compliance

This is one of the most critical and overlooked areas. Non-compliance with Indian regulations can kill a deal during due diligence.

The Impact:

  • Legal and compliance issues are a leading cause for fundraising delays, with 25-30% of deals facing hurdles at the due diligence stage due to poor documentation.
  • Non-compliance with the Companies Act, 2013, or FDI norms can lead to hefty penalties, voiding of share allotment, or even criminal proceedings.

How to Avoid It:

  • Maintain a "Virtual Data Room" (VDR): Keep all documents audit-ready. This includes:
    • Corporate Documents: Certificate of Incorporation, Memorandum of Association (MoA), Articles of Association (AoA).
    • Secretarial Records: Up-to-date statutory registers, board minutes, and shareholder resolutions.
    • Cap Table: A clean, accurate capitalization table. Any discrepancy here is a major red flag.
    • IP: All intellectual property assignments from founders, employees, and consultants are properly documented.
    • Employee Documentation: Compliant employment agreements and a properly structured and approved Employee Stock Option Plan (ESOP).
  • Comply with FDI Regulations: If raising from foreign investors, ensure compliance with FEMA (Foreign Exchange Management Act) regulations, including sectoral caps, pricing guidelines, and timely reporting to the RBI through the FIRMS portal (Form FC-GPR must be filed within 30 days of share allotment).
  • Engage Professionals: Work with a qualified Company Secretary (CS) and a corporate lawyer from day one. The cost is negligible compared to the cost of a failed funding round.

Overvaluing Your Startup

An inflated valuation without the backing of strong metrics can scare off investors. The Indian market has seen valuation corrections, with late-stage valuations dropping by 20-25% in 2023.

The Impact:

  • A high valuation sets unrealistic expectations, making future rounds difficult and increasing the risk of a "down round," which demoralizes employees and signals distress to the market.
  • For a pre-revenue idea, asking for a ₹50 Crore ($6 million) valuation will likely get you laughed out of the room. A typical Indian idea-stage valuation is in the ₹5-15 Crore ($0.6M - $1.8M) range.

How to Avoid It:

  • Benchmark Your Valuation: Research recent deals in your sector and stage in India. A seed-stage SaaS startup with ₹1 Crore ($120k) in ARR might command a valuation between ₹10-20 Crore (10x-20x ARR), not ₹100 Crore.
  • Focus on Building Value: Traction speaks louder than projections. Show month-on-month growth in users, revenue, or engagement before demanding a premium valuation.
  • Be Negotiable: Use convertible instruments like iSAFE notes (India Simple Agreement for Future Equity) to defer the valuation discussion to a later, metrics-backed round.

Focusing Solely on Equity Funding

Equity isn't the only option. India's venture debt market has grown significantly, with over $1.2 billion disbursed in 2023. Overlooking alternatives can lead to unnecessary dilution.

The Impact:

  • Selling 20-25% of your company at the seed stage can lead to founders having less than 50% ownership by Series A, reducing their control and motivation.
  • You may be missing out on non-dilutive capital that is better suited for your needs (e.g., funding inventory).

How to Avoid It:

  • Explore Venture Debt: If you have predictable revenue streams, venture debt can fund working capital or marketing expenses with minimal dilution (1-2% warrant coverage vs. 20% equity).
  • Look into Grants and Government Schemes: Investigate programs like the Startup India Seed Fund Scheme (SISFS), SIDBI Fund of Funds, and various state-level grants that provide capital without taking equity.
  • Consider Revenue-Based Financing: For businesses with recurring revenue (SaaS, D2C subscriptions), platforms offer capital in exchange for a percentage of future revenue, with no equity dilution.

Rushing the Fundraising Process

Fundraising is a marathon, not a sprint. The pressure to secure capital often leads to a rushed process, resulting in bad deals or missed opportunities.

The Impact:

  • A rushed pitch appears unprofessional and unprepared. Investors can sense desperation.
  • Founders often accept the first term sheet they receive, which may have predatory clauses (e.g., aggressive liquidation preferences, broad veto rights).

How to Avoid It:

  • Plan for a 4-6 Month Cycle: The average fundraising process in India, from the first outreach to money in the bank, takes 4-6 months. Start well before your cash runs out.
  • Prepare a Target List: Research and build a list of 50-100 relevant investors. Fundraising is a numbers game. You might need 100+ conversations to get 1-2 term sheets.

Build Relationships Early: Don't reach out to investors only when you need money. Connect with them on LinkedIn, share updates, and seek advice months in advance. A warm introduction from a trusted source increases your chance of getting a meeting by over 10x.

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Private Limited Company
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  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

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BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
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  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
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1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

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1,499 + Govt. Fee
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  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What Documents Are typically required during a Fundraising Round in India?

When raising funds in India, especially from institutional investors or sophisticated angels, startups are expected to present a set of key documents. The typical documents include:

  • Pitch Deck 
  • Business Plan/Model Document
  • Financial Statements
  • Projections/Financial Model
  • Cap Table
  • Company Incorporation Documents
  • Shareholder Agreements (if any)
  • Legal & Regulatory Compliance Documents

What Is a Term Sheet and Why Is It Important?

A Term Sheet is a non-binding document that outlines the key terms and conditions under which an investor agrees to invest in a startup. It typically covers:

  • Valuation
  • Investment Amount
  • Equity Stake
  • Investor Rights (Board Seats, Information Rights)
  • Liquidation Preference
  • Anti-Dilution Provisions
  • Exit Clauses

It sets the negotiation framework before drafting the final legal agreements and helps both parties align on expectations, rights, and obligations. 

How Much Equity Should a Startup Give Away in the First Round of Funding?

There’s no fixed percentage, but most early-stage startups in India dilute anywhere between 10% to 25% in their first funding round (usually seed or pre-seed).

How Long Does the Fundraising Process Usually Take?

The typical fundraising cycle, from initial outreach to money in the bank, can take 3 to 6 months, sometimes longer, depending on factors like market conditions, founder network, startup stage, etc.

What Is a Convertible Note and How Is It Different from Equity?

A Convertible Note is a debt instrument that converts into equity at a future date, typically during a priced funding round. Startups often use convertible notes in early rounds like seed funding to delay valuation discussions.

A convertible note differs from direct equity because it starts as a debt instrument and later converts into equity, typically during a future funding round. Unlike equity—where investors immediately receive shares based on a set valuation—convertible notes allow startups to raise funds without determining the company’s valuation upfront.

Related Posts

One-Person Company (OPC) Registration Process: Step-by-Step Guide

One-Person Company (OPC) Registration Process: Step-by-Step Guide

In the dynamic world of entrepreneurship, One-Person Companies (OPCs) have emerged as a game-changing business structure for solo entrepreneurs. These entities offer limited liability protection and the simplicity of a sole proprietorship. It empowers individuals to have a business without the complexity of managing multiple partners.

Table of Contents

Overview of One-Person Company Registration

A One-Person Company (OPC) is a business entity that allows a single individual to establish a company with limited liability. Unlike traditional business structures, OPCs provide entrepreneurs with a legal framework that protects personal assets while offering the flexibility of single ownership. This model bridges the gap between sole proprietorship and traditional multi-member companies.

Eligibility Criteria for the Incorporation of One-Person Company

To register an OPC in India an individual must be an Indian resident and can be both the director and shareholder. The company requires a minimum authorised share capital of ₹1 lakh, and the proposed company name must be unique. Also, the individual can be a member of only one OPC and they should not have any criminal record.

One-Person Company Registration Steps

OPC registration process has following steps:

Step 1: Initial Preparation

Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) using the MCA portal. Select a unique company name that complies with Companies (Incorporation Rules) 2014.

Step 2: Nominee Appointment

Identify and secure consent from a nominee who can become a director in case of the original promoter's incapacitation. Ensure the nominee meets legal and professional eligibility criteria.

Step 3: OPC Documentation

Compile essential documents including proof of registered office, director identification, address proof, and business plan. Maintain the mandatory minimum authorized capital of ₹1 lakh.

Step 4: Online Registration

Complete registration through the MCA portal by uploading the required documents, verifying DIN, and submitting all necessary forms.

Step 5: Certificate and Compliance

Receive the Certificate of Incorporation within 3-5 days after verification. Subsequently, maintain ongoing regulatory compliance like annual filings and adherence to OPC-specific requirements.

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Documents Required for One-Person Company Registration

  • Identity proof (PAN card, Aadhaar card)
  • Residence proof (utility bills, bank statements)
  • Proof of registered office (rent agreement or ownership documents)
  • Nominee consent documents
  • Digital Signature Certificate

Timelines for OPC registration

You can obtain their Digital Signature Certificate (DSC) and Director Identification Number (DIN) within one day. The Certificate of Incorporation typically takes between 3 to 5 days to process. From start to finish, the entire incorporation process can be completed in approximately 10 days.

Post-Incorporation Formalities for OPC

After registering an OPC company, you must complete several key steps as highlighted below:

  • Open a dedicated company bank account and deposit share capital within 60 days.
  • Issue share certificates to shareholders within two months as proof of ownership.
  • Register for GST if goods or service supply exceeds thresholds.
  • Maintain statutory registers to document company activities.
  • Prepare for annual tax return filing and ensure ongoing regulatory compliance.

Features of One-Person Company (OPC)

  1. Single Ownership: Allows a single individual to form a company, providing complete control and ownership under Section 3(1)(c) of the Companies Act.
  2. Innovative Nominee System: Requires a nominee who can take over company ownership in case of the original member's death or incapacitation, ensuring business continuity.
  3. Flexible Management: Permits 1-15 directors, with minimal administrative complexity and no minimum paid-up capital requirement.
  4. Limited Liability Protection: Separates personal assets from business risks, offering entrepreneurs crucial financial security.
  5. Simplified Compliance: Provides a streamlined approach to business registration and management, making corporate structure accessible to individual entrepreneurs.

Advantages of One-Person Company Registration

  • One of the biggest advantages of an OPC company is that the OPC structure provides a separate legal entity status that helps protect the individual's personal assets from business liabilities.
  • This model enables easier fundraising opportunities, as banks and financial institutions typically prefer lending to registered companies over sole proprietorships.
  • OPCs also provide a clear path for business continuity through the mandatory nominee appointment, ensuring the potential for perpetual succession.
  • The simplified management structure allows for quick decision-making.

Disadvantages of OPC

While One-Person Companies present numerous benefits, they also come with certain limitations that you should carefully consider:

  • The OPC structure is primarily suitable for small business operations, with strict restrictions on expanding ownership or raising additional capital.
  • There are notable limitations on business activities, particularly prohibiting non-banking financial investment activities.
  • The close alignment between ownership and management can create potential challenges, as the sole member may have unchecked control over business decisions.
  • As the business grows, the OPC model may become restrictive, potentially requiring a transition to a more complex business structure.

Frequently Asked Questions

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Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

How to do OPC registration?

Obtain a Director Identification Number (DIN) and Digital Signature Certificate (DSC). Choose a unique OPC name and get MCA approval. File incorporation documents with the Registrar of Companies (RoC), including MOA, AOA, and proof of address, identity, and ownership. Receive the Certificate of Incorporation upon approval.

What is the minimum capital for a one-person company?

A one-person company (OPC) can be established with an authorised capital of at least ₹1 lakh, but there is no requirement for a minimum paid-up capital.

What is the cost of one person company registration in India?

OPC registration fees start at INR 900 and depend on authorized capital, ranging from nil to ₹2,06,000+.

Is audit compulsory for OPC?

Yes, an audit is compulsory for an OPC.

What documents are required for OPC?

  • Proof of Identity of the sole director (e.g., Aadhaar, PAN)
  • Proof of Address (e.g., utility bill, bank statement)
  • Passport-sized Photograph of the director
  • No Objection Certificate (NOC) from the owner of the registered office
  • DIN and DSC of the director
  • Memorandum of Association (MOA) and Articles of Association (AOA)

What is a necessary step in setting up an OPC?

The most necessary step in setting up an OPC is to choose a suitable name for the company and ensure it complies with the Ministry of Corporate Affairs (MCA) naming guidelines.

How to Open a Company in India: Process of Incorporation of Company

How to Open a Company in India: Process of Incorporation of Company

Starting a company in India can be an exciting and rewarding venture, but navigating the legal and procedural requirements can seem daunting. This comprehensive guide will walk you through the essential steps to open a company in India, ensuring a smooth and compliant process of incorporation of the company.

Table of Contents

Guidelines to Follow When Starting Your Business in India

Before diving into the specifics of the company registration process, it's crucial to understand the general guidelines for starting a company in India. These guidelines will help you lay a strong foundation for your business and avoid common pitfalls.

  • Conduct thorough market research to validate your business idea and identify your target audience.
  • Develop a comprehensive business plan that outlines your objectives, strategies and financial projections.
  • Choose a unique and meaningful name for your company that aligns with your brand identity and complies with the naming guidelines set by the Ministry of Corporate Affairs (MCA).
  • Determine the optimal business structure for your venture.
  • Secure adequate funding through personal savings, investor capital, or business loans
  • Seek professional advice from legal experts, chartered accountants, and business mentors to ensure compliance and make informed decisions.

Step 1. Choose Your Business Structure

Selecting the right business structure is a critical decision when starting a company in India. The type of entity you choose will have significant implications for liability, taxation, compliance and overall operations. Here are the most common business structures in India:

  1. Sole Proprietorship
    • Owned and operated by a single individual
    • Simple to set up and manage
    • No separate legal entity, unlimited personal liability
  2. Partnership Firm
    • Formed by two or more individuals or entities
    • Governed by the Indian Partnership Act, 1932
    • Partners share profits, losses and management responsibilities
  3. Limited Liability Partnership (LLP)
    • Combines the benefits of a partnership and a private limited company
    • Partners have limited liability, protecting personal assets
    • Requires a minimum of two partners and compliance with the LLP Act, 2008
  4. One Person Company (OPC)
    • A private limited company with a single member
    • Suitable for solo entrepreneurs seeking limited liability
    • Easier compliance compared to a private limited company
  5. Private Limited Company
    • Separate legal entity with limited liability for shareholders
    • Requires a minimum of two shareholders and two directors
    • Stricter compliance requirements under the Companies Act, 2013

When choosing your business structure, consider factors such as liability protection, taxation, compliance requirements, and scalability. For example, a sole proprietorship is the easiest to set up but offers no personal liability protection. On the other hand, a private limited company provides limited liability protection but involves more complex compliance requirements.

Step 2. Required Documents for Company Registration

Before initiating the company registration process, gather the necessary documents to ensure a smooth and efficient incorporation. The following documents are typically required:

  1. Proof of identity and address for directors and shareholders (e.g., PAN card, Aadhaar card, passport)
  2. Passport-sized photographs of directors and shareholders
  3. Proof of registered office address (e.g., rental agreement, utility bills)
  4. Digital Signature Certificate (DSC) for directors
  5. Director Identification Number (DIN) for proposed directors
  6. Memorandum of Association (MoA) and Articles of Association (AoA)
  7. Consent letters from proposed directors
  8. Affidavit for non-conviction of directors

Having these documents ready will streamline the process of incorporation of the company and minimise delays in the company formation process.

Step 3. Register Your Business

With the necessary documents in hand, you can now proceed with registering your business. The company registration process involves the following steps:

  1. Obtain Digital Signature Certificate (DSC) for directors from a certified authority.
  2. Apply for Director Identification Number (DIN) for proposed directors through Form DIR-3.
  3. Reserve the company name through the RUN (Reserve Unique Name) web service of the MCA.
  4. Draft the Memorandum of Association (MoA) and Articles of Association (AoA) defining the company's objectives and rules.
  5. File incorporation documents, including Form SPICe (INC-32), MoA, AoA and other necessary documents, with the Registrar of Companies (ROC) along with the prescribed fees.
  6. Obtain the Certificate of Incorporation from the ROC upon successful registration.

The entire process of incorporation of a company can be completed online through the MCA portal, making it convenient and efficient for entrepreneurs to start a startup in India.

Step 4. Acquire Required Licenses and Permits

Depending on the nature of your business and the industry you operate in, you may need to obtain specific licenses and permits to legally open a company in India. Some common types of business licenses and registrations include:

  • Goods and Services Tax (GST) registration
  • Shops and Establishment Act registration
  • Professional Tax registration
  • Import Export Code (IEC) for import/export businesses
  • FSSAI license for food businesses
  • Trade License from local municipal authorities
  • Industry-specific licenses (e.g., FSSAI for food businesses, IEC for import/export)

Research the specific licenses applicable to your business and ensure timely compliance to avoid legal complications.

Step 5. Procedure for Company Registration in India

To summarise the company registration process, here's a step-by-step procedure for setting up a company in India:

  1. Choose a suitable business structure (sole proprietorship, partnership, LLP, OPC, private limited company).
  2. Obtain necessary documents for incorporation (identity proofs, registered office proof, DSC, DIN).
  3. Apply for name approval through the RUN web service.
    • Select and apply for a unique company name through the RUN (Reserve Unique Name) service on the MCA portal.
  4. Incorporation Documents
    • Draft the Memorandum of Association (MoA) and Articles of Association (AoA)
    • Prepare the consent letters from the proposed directors
    • Obtain the registered office address proof
  5. SPICe+ Form
    • Fill out the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) form
    • Attach the necessary documents (MoA, AoA, director consents, address proof, etc.)
    • Pay the prescribed registration fees based on the authorised capital
  6. Obtain the Certificate of Incorporation from the ROC.
    • Upon successful filing of the SPICe+ form, the Registrar of Companies (ROC) will issue the Certificate of Incorporation (COI)
    • The COI will mention the Corporate Identity Number (CIN) and the date of incorporation
  7. Apply for necessary licenses and registrations (GST, Shops and Establishment, Professional Tax, industry-specific licenses).
  8. Open a corporate bank account and secure funding.
  9. Commence business operations.

By following this procedure diligently, you can successfully open a company and start a startup in India.

Step 6. Hiring Employees

As your business grows, you may need to hire staff to support your operations. When hiring employees in India, keep the following points in mind:

  • Register for Employees' Provident Fund (EPF) and Employees' State Insurance (ESI) if applicable.
  • Draft comprehensive employment contracts outlining roles, responsibilities, compensation and benefits.
  • Comply with minimum wage laws and other labour regulations.
  • Maintain proper records of employee information, attendance, and payroll.
  • Ensure a safe and healthy work environment in compliance with occupational safety laws.

Building a strong and motivated team is crucial for the success of your venture as you start a startup in India.

Step 7. Ensure Compliance with Regulations

Compliance with various laws and regulations is an ongoing responsibility when starting a company in India. Some key areas of compliance include:

  • Filing annual returns and financial statements with the ROC.
  • Maintaining proper books of accounts and audit records.
  • Complying with taxation laws, including income tax and GST.
  • Adhering to labour laws and employee welfare regulations.
  • Obtaining and renewing necessary licenses and permits.
  • Ensuring data privacy and protection in accordance with relevant laws.

Regularly review and update your compliance practices to stay ahead of regulatory changes and avoid penalties.

Step 8. Promote Your Business

With your company successfully registered and operational, it's time to focus on promoting your business and attracting customers. Consider the following strategies to effectively market your venture:

  • Develop a strong online presence through a professional website and social media channels.
  • Leverage digital marketing techniques such as search engine optimisation (SEO), pay-per-click advertising (PPC), and content marketing to reach your target audience.
  • Attend industry events, trade shows, and networking sessions to build relationships and showcase your offerings.
  • Collaborate with influencers, bloggers, and media outlets to gain exposure and credibility.
  • Offer exceptional customer service and seek feedback to continuously improve your products or services.

By consistently promoting your business and delivering value to your customers, you'll establish a strong brand presence and drive growth as you open a company in India.

Conclusion

By understanding the process of incorporation of company and following the guidelines outlined in this comprehensive guide, you can confidently navigate the legal and procedural requirements to open a company and start a startup in India. Remember to seek professional guidance when needed and stay compliant with regulations to ensure the long-term success of your venture.

Frequently Asked Questions

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Frequently Asked Questions

How can I start my own company in India?

To start a startup in India, follow these steps: choose a business structure, obtain necessary documents, register your company with the ROC, acquire licenses and permits, hire employees, ensure compliance, and promote your business effectively.

What type of company is easiest to start?

A sole proprietorship is the easiest type of company to start in India, as it involves minimal legal formalities and compliance requirements. However, it offers no separate legal identity or liability protection for the owner.

How much money is required to start a company in India?

The capital required to start a startup in India varies depending on the business structure and the nature of your business. Private limited companies require a minimum paid-up capital of ₹1 lakh, while other structures have no minimum capital requirements.

How much does it cost to register a company in India?

The cost of company registration in India includes fees for name reservation, incorporation filing, stamp duty, and professional charges. The total cost can range from ₹5,000 to ₹50,000 or more, depending on the business structure and the authorised capital.

How can I register my company myself in India?

You can register your company yourself by following the company formation process outlined in this guide. However, it's recommended to seek professional assistance from a chartered accountant or company secretary to ensure compliance and avoid errors.

How do I start a new PVT Ltd company?

To start a private limited company, follow these steps: obtain DSC and DIN for directors, reserve the company name, draft MoA and AoA, file incorporation documents with the ROC, obtain the Certificate of Incorporation, and comply with post-registration formalities.

Can a single person register a company in India?

Yes, a single person can register a One Person Company (OPC) in India. An OPC is a type of private limited company with a single member and offers limited liability protection to the owner.

A Comprehensive Guide on Micro Finance Company Registration

A Comprehensive Guide on Micro Finance Company Registration

Micro Finance Companies (MFCs) are changing lives by making financial services accessible to people who are often overlooked by traditional banks. These companies focus on helping low-income individuals, small business owners, and self-employed people by offering small loans and basic financial support.

By doing so, they promote financial inclusion and play a key role in empowering communities and boosting local economies. However, like any financial institution, Micro Finance companies need to be registered and follow specific rules and regulations to operate legally and build credibility.

In this blog, we’ll walk you through everything you need to know about registering a Micro Finance Company in India- from understanding what they do, to the steps, documents, and costs involved in the registration process.

Table of Contents

What is a Micro Finance Company?

A Micro Finance Company is a financial institution that provides small loans and financial services to low-income individuals, self-employed persons, and small enterprises who lack access to conventional banking services.

These companies play a vital role in empowering economically weaker sections, supporting entrepreneurial initiatives, and fostering local economic development by promoting financial inclusion.

Features of Micro Finance Company

Micro Finance Companies are characterised by:

  • Providing small-ticket loans, typically without the need for collateral
  • Targeting low-income, rural, and unbanked populations
  • Offering simplified and accessible loan approval processes
  • Promoting financial literacy and inclusive banking

Objectives of Micro Finance Company

The main objectives of an MFC include:

  • Promoting financial inclusion for low-income individuals
  • Empowering women and self-employed entrepreneurs
  • Supporting small businesses and farming communities
  • Encouraging savings and responsible financial behaviour
  • Driving sustainable economic growth in underserved areas

Need for Micro Finance Company

There is a growing need for MFCs due to the lack of access to formal credit channels among the financially marginalised. Traditional banks often require credit history and collateral, which many low-income individuals cannot provide.

MFCs bridge this gap by offering unsecured loans and financial products tailored to the needs of small businesses, farmers, and micro-entrepreneurs.

Roles of a Micro Finance Company

Micro Finance Companies perform various functions that support economic empowerment:

  • Disbursing microloans to low-income individuals and small enterprises
  • Offering savings schemes and recurring deposit products
  • Providing insurance and risk mitigation solutions
  • Conducting financial literacy and awareness programs

Prerequisites for Microfinance Company Registration

A Micro Finance Company (MFC) can be registered either as an NBFC or as a Section 8 Company. The prerequisites vary depending on the type of entity you choose.

Prerequisites NBFC Section 8
Approval by the RBI It is mandatory It is not required
Net Owned Fund (NOF) Requires a minimum NOF of ₹5 crores There is no minimum requirement
Loan Limit It should be a maximum of 10% of the total assets There is a provision for an unsecured loan of around Rs. 50,000 to small businesses
Director Experience At least one director with 10 years of experience in financial services No prior experience required
No. of members Minimum members:
Private Limited Company- 2
Public Limited Company - 7
Minimum of 2 members
Status of Organisation Profitable Organisation Non-profit Organisation

Documents Required for Micro Finance Company Registration

Key documents include:

  • Identity and address proof of directors
  • Memorandum and Articles of Association
  • Business plan and financial projections
  • RBI approval (for NBFCs)
  • Certificate of Incorporation (for Section 8 companies)
  • Net Owned Fund certificate (for NBFCs)
  • Copy of Auditor’s report
  • Banker’s report copy
  • Recent credit report of the directors
  • Net worth certificate of the directors
  • Proof of work experience in the financial sector
  • Tax and statutory compliance documents

Micro Finance Company Registration as an NBFC

Given the two different approaches to forming a microfinance company, the registration process for an NBFC-MFI follows a specific set of steps:

  1. Company Incorporation:
    The first step is to register your business as either a Public Limited or a Private Limited Company. A private company requires a minimum of 2 members and a capital of ₹1 lakh, while a public company requires at least 7 members.
  2. Capital Requirement:Next, you must raise the minimum required Net Owned Funds (NOF)- ₹5 crore for most regions.
  3. Capital Deposit:
    Once the capital is raised, it must be deposited in a bank as a fixed deposit, and a ‘No Lien’ certificate must be obtained from the bank to confirm the funds are unencumbered.
  4. RBI License Application:
    The company must then apply for an NBFC license by submitting an online application through the RBI’s portal, along with all necessary certified documents. Additionally, a physical copy of the application and documents must be submitted to the RBI’s regional office.
  5. All documents should be readily available with the company at the time of filing.

Micro Finance Company Registration as a Section 8 Company

Alternatively, a Micro Finance company can be registered as a Section 8 Company, which is a not-for-profit entity. The steps involved in this process are:

  1. Obtain DSC:
  2. Begin by applying for the Digital Signature Certificate (DSC) for all proposed directors. The DSC is essential for digitally signing e-forms during the registration process.
  3. Name Approval:
  4. Next, apply for name approval using the SPICe+ form. The chosen name should reflect the company's non-profit nature- suggested words include Foundation, Sanstha, or Micro Credit.
  5. Draft and File MOA & AOA:
  6. Once the name is approved, prepare the Memorandum of Association (MOA) and Articles of Association (AOA). These must be filed along with the necessary supporting documents.
  7. Submit Incorporation Documents:
  8. Finally, all relevant incorporation documents, including Form INC-12, must be filed to obtain the license to operate as a Section 8 company.

Micro Finance Company Registration Fees

Registration fees vary based on the chosen structure:

  • NBFCs: Government registration charges, RBI license fee, legal and consultancy fees, and compliance setup costs.
  • Section 8 Companies: Lower fees due to no capital requirement; includes MCA license charges, incorporation costs, and legal consultations.

Registration Process of the Company with the RBI

Step 1: Register the Brand Name as a Trademark

Before proceeding with the RBI registration, it’s important to secure your brand identity. Registering your brand name or logo as a trademark under the Trademarks Act, 1999, ensures legal protection and exclusive rights to use the name across India.

Step 2: Incorporate the Company and Obtain a Certificate of Incorporation

Begin by registering your business as a Private Limited or Public Limited Company under the Companies Act, 2013 via the Ministry of Corporate Affairs (MCA) portal.
You will receive a Certificate of Incorporation (CoI) upon approval, which acts as the legal foundation for your microfinance company.

Step 3: Deposit Capital and Obtain No Lien Certificate

Raise the required Net Owned Funds (NOF)—₹5 crore (₹2 crore for northeastern states)—and deposit it as a Fixed Deposit in a scheduled commercial bank. Obtain a No Lien Certificate from the bank, confirming the funds are unencumbered and reserved as per RBI norms.

Step 4: Prepare and Submit the Detailed Project Report (DPR)

Create a robust Detailed Project Report covering your business plan, financial projections, risk management policies, organisational structure, and promoter background.

Step 5: Complete RBI Formalities and Gather Certified Documents

Collect all required documents, including:

  • Certificate of Incorporation
  • MOA & AOA
  • PAN & TAN
  • No Lien Certificate
  • Board resolutions
  • Audited financials (if available)

Step 6: Submit Online Application via RBI's Portal

Access the portal and complete the online NBFC-MFI application. Upload all necessary documents and ensure there are no errors or omissions in the form.

Step 7: Submit a Physical Application to the RBI Regional Office

After the online submission, send a hard copy of your application, including all enclosures and supporting documents, to the Regional Office of the RBI under whose jurisdiction your company falls.

Conclusion

Registering a Micro Finance Company enables you to reach underserved communities while operating within a legal and trusted framework.

Each model has its own advantages. NBFCs are ideal for those looking to operate commercially, access capital markets, and build a for-profit lending institution with high compliance standards. On the other hand, Section 8 Companies are best suited for nonprofit or social enterprise models focused on financial literacy, community development, or charitable micro-lending.

Frequently Asked Questions

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1,499 + Govt. Fee
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  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
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1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
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1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

How Do I Start a Microfinance Company?

Each model has its own advantages. NBFCs are ideal for those looking to operate commercially, access capital markets, and build a for-profit lending institution with high compliance standards. On the other hand, Section 8 Companies are best suited for nonprofit or social enterprise models focused on financial literacy, community development, or charitable micro-lending.

  • As an NBFC-MFI (Non-Banking Financial Company - Micro Finance Institution)This is a for-profit model regulated by the RBI, which is ideal if you plan to scale lending operations commercially.
  • As a Section 8 Company (Non-Profit Model)This structure is more suitable for social enterprises or charitable organisations offering microcredit without profit motives.

Key steps:

  1. Incorporate a company (Private/Public Ltd. or Section 8).
  2. Raise the required capital (₹5 crore for NBFC-MFI or as applicable).
  3. Deposit capital and get a No Lien certificate from a bank.
  4. Submit a Detailed Project Report (DPR).
  5. Apply to the RBI for a license (NBFC route) or to the MCA for Section 8.
  6. Await approval and begin operations.

How Do I Get a Microfinance License?

If you're forming an NBFC-MFI, the license must be obtained from the Reserve Bank of India (RBI).

Steps to get the license:

  1. Incorporate a company under the Companies Act
  2. Raise and deposit ₹5 crore as Net Owned Funds
  3. Obtain a No Lien certificate for the FD from the bank
  4. Prepare a Detailed Project Report (DPR) and supporting documents
  5. Apply online via the RBI's portal
  6. Submit physical documents to the RBI Regional Office

For Section 8 Companies, you need to apply to the Ministry of Corporate Affairs (MCA) for a license using Form INC-12.

How Much Capital is Required to Start a Micro Finance Company?

  • If you are starting as an NBFC-MFI, the minimum capital (Net Owned Funds) required is ₹5 crore for most parts of India.
  • For a Section 8 Company, there is no minimum capital requirement. However, the capital should be sufficient to support your operations and fulfil the objectives laid out in your application.

How Do I Register a Micro Company?

If by “micro company” you mean a Microfinance Company, you can register in two ways:

  1. As a Private or Public Limited Company (for NBFC route)
  2. As a Section 8 Company (for nonprofit)

Once your company is incorporated, follow the appropriate process (RBI or MCA) to apply for microfinance permissions.

Nipun Jain

Nipun Jain is a seasoned startup leader with 13+ years of experience across zero-to-one journeys, leading enterprise sales, partnerships, and strategy at high-growth startups. He currently heads Razorpay Rize, where he's building India's most loved startup enablement program and launched Rize Incorporation to simplify company registration for founders.

Previously, he founded Natty Niños and scaled it before exiting in 2021, then led enterprise growth at Pickrr Technologies, contributing to its $200M acquisition by Shiprocket. A builder at heart, Nipun loves numbers, stories and simplifying complex processes.

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