Revised Form URC-1 - Company Registration under section 366

Jun 15, 2025
Private Limited Company vs. Limited Liability Partnerships

If you run a business like a partnership firm, LLP, or a registered society and want to turn it into a private or public limited company, you can do so under Section 366 of the Companies Act, 2013. To support such conversions, the Ministry of Corporate Affairs (MCA) notified the Companies (Authorised to Register) Second Amendment Rules, 2018 on 20th September 2018, which became effective from 2nd November 2018.

These rules introduced a revised version of eForm URC-1, a crucial form used to initiate the registration of an existing entity as a company. The form is prescribed under the Companies (Authorised to Register) Rules, 2014, and is directly linked to the provisions of Section 366. The amendment aimed to simplify the conversion process, provide legal clarity, and strengthen regulatory compliance. The following section explains the purpose and significance of filing Form URC-1 in detail.

Table of Contents

Form URC-1

Form URC-1, also known as the "URC 1 form", is an e-form prescribed under Rule 3(2) of the Companies (Authorised to Register) Rules, 2014. It enables various business entities, including partnerships, LLPs, societies, and others, to register as companies under Section 366 of the Companies Act, 2013. The form plays a crucial role in facilitating the formal registration process when an entity decides to transform its business structure into a company.

Filing Form URC-1 is mandatory for entities opting to convert into a company under the provisions of the Companies Act. It captures comprehensive details about the existing entity, the proposed company, and the compliance requirements for a smooth transition. By submitting this form, entities can initiate the company registration process and ensure adherence to the legal framework governing such conversions.

What is Section 366 of the Act?

Section 366 of the Companies Act, 2013 is a pivotal provision that allows various business entities, such as partnerships, LLPs, and societies, to register as companies under the Act. A significant amendment to this section, based on the recommendations of the Company Law Committee, reduced the minimum member requirement from seven to two, making it easier for smaller entities to convert into companies.

The scope of Section 366 has evolved since its introduction in the Companies Act, 1956. The 2017 amendments aimed to widen the eligibility criteria for registration, enabling more businesses to benefit from the advantages of operating as a company. This provision offers a streamlined pathway for entities formed under other laws to transition into the corporate structure governed by the Companies Act.

By registering under Section 366, entities can enjoy benefits such as limited liability protection, better access to capital, and enhanced credibility in the market. The provision creates a bridge between different legal frameworks, allowing businesses to adopt a more formal and regulated structure that aligns with their growth aspirations.

Companies that can be Registered under Section 366

Section 366 of the Companies Act, 2013 allows a wide range of entities to register as companies, including:

These entities must have a minimum of two members to be eligible for registration under Section 366. They can convert into companies limited by shares, guarantee, or as unlimited companies.

It's important to note that Section 366 applies to entities originally formed under laws other than the Companies Act. It provides a pathway for these businesses to transition into the corporate structure and operate under the purview of the Companies Act, 2013.

This provision provides a legal pathway for such organisations to adopt a corporate structure, enabling them to operate under a more regulated framework while enjoying benefits like limited liability, perpetual succession, and enhanced legal status.

Purpose of Form URC-1

The primary purpose of Form URC-1 is to facilitate the registration of certain entities, such as partnerships, LLPs, and societies, as Part I Companies under the Companies Act, 2013. When an entity has seven or more members, Form URC-1 is filed along with Form INC-7 to initiate the company registration process.

Form URC-1 simplifies the online registration procedure by capturing all the necessary details and documents required for the conversion. It serves as a comprehensive application form that enables entities to provide information about their existing structure, proposed company details, and compliance with the legal requirements.

By filing Form URC-1, entities can ensure a smooth transition from their current legal status to a company registered under the Companies Act. The form helps in maintaining transparency and accuracy in the registration process, as it requires the submission of relevant documents and disclosures.

For entrepreneurs and startups, Form URC-1 acts as a practical tool, guiding them through the registration process and helping them understand the documents and disclosures needed for conversion.

Key Amendments and Implications

The Companies (Authorized To Register) Amendment Rules, 2023, introduced several significant changes to Form URC-1. The amended form now requires additional details, including:

Information Category Required Details
Existing and Proposed Entity Name, address, registration number, PAN, etc.
Legal and Financial Disclosures Consent of members, creditors, and debenture holders; assets and liabilities; pending legal proceedings
Resolution and Meeting Specifics Date of resolution, meeting details, approval of conversion
Compliance-related Data Advertisement dates, affidavits, indemnity bonds, NOCs

The amendments aim to strengthen the due diligence process and ensure that all relevant information is disclosed during the registration process. By mandating the submission of these details, the MCA seeks to enhance the integrity and reliability of the information provided by the entities seeking to convert into companies.

The implications of these amendments are significant for entities considering registration under Section 366. They must ensure compliance with the new disclosure requirements and maintain proper documentation to support their application. The increased transparency and disclosures help in preventing any misrepresentation or concealment of material facts during the registration process.

Entities should carefully review the amended Form URC-1 and ensure that they have all the necessary information and documents ready before initiating the filing process.

Attachments to be submitted for Form URC-1

The amended Form URC-1 requires several mandatory attachments to be submitted along with the application. These documents provide supporting evidence and ensure compliance with legal and regulatory requirements. The key attachments include:

  • Particulars of members/partners: A list of all members or partners of the existing entity, along with their details and shareholding pattern.
  • Declaration by directors: A declaration by two or more proposed directors of the company, verifying the particulars of all members/partners.
  • Affidavit for dissolution: An affidavit from all members/partners, confirming the dissolution of the existing entity.
  • Instrument constituting the entity: A copy of the partnership deed, LLP agreement, or other instrument constituting or regulating the existing entity.
  • Certificate of registration: A copy of the certificate of registration of the existing entity, issued by the relevant authority.
  • No Objection Certificates (NOCs): NOC from any sectoral regulators or authorities, if applicable, depending on the nature of the business and the sector in which it operates
  • Newspaper advertisement: A copy of the newspaper advertisement published in a English and a vernacular language newspaper, giving notice of the proposed registration.
  • Compliance certificate: A certificate from a practicing professional (CA/CS/CWA), confirming compliance with the provisions of the Stamp Act, to the extent applicable.
  • Consent of majority members: A resolution passed by a majority of members, agreeing to the registration of the entity as a company.
  • Statement of Accounts: Optionally, a statement of accounts and a valuation report determining the value of assets and liabilities of the existing entity

These attachments provide critical information about the existing entity, its members, and the proposed company. The affidavit from members ensures their consent and commitment to the conversion process. NOCs from regulatory authorities help in identifying any sector-specific compliance requirements or approvals needed for the conversion. The consent and declarations from the first directors establish their eligibility and willingness to take on the responsibilities of directors in the newly registered company. The copies of incorporation documents and constitutional papers provide proof of the existing entity's legal status and governance framework.

Entities should ensure that all the required attachments are duly prepared, signed, and submitted along with Form URC-1. Incomplete or missing attachments may lead to delays or rejection of the registration application. It is advisable to maintain proper records and documentation to support the information provided in the form and the attachments.

Frequently Asked Questions

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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 

Frequently Asked Questions

What is a company for registration under section 366?

A company for registration under Section 366 refers to an entity, such as a partnership firm, LLP, or society, that seeks to convert and register itself as a company under the Companies Act, 2013. This provision allows these entities to transition into the corporate structure and be governed by the regulations and compliance requirements specified in the Act.

What is Form 1 of the Companies Act?

Form 1 of the Companies Act, also known as Form INC-1, is an application form used for reserving a name for a proposed company. It is the first step in the company incorporation process, where the promoters or applicants propose a name for the company and seek approval from the Registrar of Companies (ROC) before proceeding with the incorporation formalities.

What are the Authorised to register rules for companies?

The Authorised to Register Rules for companies are a set of rules prescribed under the Companies Act, 2013, which govern the registration of entities as companies under Section 366. These rules provide the eligibility criteria, procedures, and requirements for entities seeking to convert into companies. The rules specify the forms to be filed, attachments to be submitted, and the overall process to be followed for a successful registration under Section 366.

Related Posts

10 Advantages of Incorporating a Company: Why You Should Incorporate Your Business

10 Advantages of Incorporating a Company: Why You Should Incorporate Your Business

In today's competitive business landscape, entrepreneurs are constantly seeking ways to establish a strong foundation for their ventures. One crucial decision that can significantly impact the growth and success of a business is the choice to register as a company. Company registration offers a multitude of advantages that can propel your enterprise to new heights. In this article, we will delve into the top 10 benefits of registering a company, empowering you to make an informed decision for your business's future.

Table of Contents

What are the Benefits of Company Incorporation in India?

Registering a company in India comes with a host of advantages that can elevate your business to new levels of success. From enhanced credibility to legal protection and access to funding, company registration provides a solid foundation for growth. Let's explore these benefits in more detail.

1. Legal Entity

One of the primary benefits of business registration is that the company becomes a separate legal entity. Under the Companies Act, a registered company is considered an artificial person, distinct from its directors and shareholders. This means that upon incorporation, the company acquires its legal personality, allowing it to own property, incur debts, and engage in legal proceedings under its name.

The concept of a separate legal entity provides several advantages:

  • The company can enter into contracts and agreements independently
  • It can sue or be sued in its name
  • The company's assets and liabilities are separate from those of its owners
  • The company's existence is not tied to the lifespan of its members

This legal separation is crucial for protecting the personal assets of the company's owners, as they are not personally liable for the company's debts or legal obligations.

2. Perpetual Succession

Company registration ensures perpetual succession, which is a significant advantage for businesses. Perpetual succession means that the company's existence continues indefinitely, regardless of any changes in its membership, staff, or shareholders. This stability is a key benefit of incorporating a business, as it ensures that the company can outlast individual members or leadership changes.

Here are some key points about perpetual succession:

  • The company's existence is not affected by the death, retirement, or resignation of its members
  • Shares can be transferred without disrupting the company's operations
  • The company remains operational until it is legally dissolved
  • Perpetual succession allows for long-term planning and execution of business strategies

By incorporating your business, you create a stable and enduring entity that can withstand changes in ownership and management, providing a solid foundation for growth and success.

3. Limited Liability

Limited liability is one of the most significant benefits of registering a private limited company. In a registered company, the shareholder's assets are protected from the company's debts and legal obligations. This means that in the event of financial losses or legal issues, the shareholders are only liable to the extent of their investment in the company.

Key points about limited liability:

  • Shareholders' assets (e.g., houses, cars, bank accounts) are safeguarded
  • Directors are not personally liable for the company's debts or legal liabilities
  • Limited liability encourages entrepreneurship and risk-taking
  • It provides a layer of protection for business owners

In contrast, sole proprietors and partners in unregistered businesses are personally liable for all business debts and obligations, putting their assets at risk. Limited liability is a crucial advantage of company registration, offering peace of mind and financial security for business owners.

4. Free & Easy Transferability of Shares

One of the advantages of incorporation of a company is the free and easy transferability of shares. In a registered company, shares can be transferred from one shareholder to another without affecting the company's operations. This flexibility in ownership transfer is a significant benefit, particularly for growing businesses.

Here are some key aspects of share transferability:

  • Public companies: Shares are freely transferable, and shareholders can sell their shares to anyone without restrictions.
  • Private companies: While share transfer is possible, there may be some restrictions imposed by the company's bylaws or shareholder agreements.
  • The transfer process typically involves a signed share transfer form and the handover of the share certificate to the buyer.
  • Easy share transferability allows for smooth succession planning and exit opportunities for shareholders.

Free share transfer attracts investors, raises capital, and enables ownership changes without disrupting operations.

5. Owning Property

As a separate legal entity, a registered company can acquire, own, and transfer property in its name. This is a significant advantage of company registration, as it distinguishes the company's assets from those of its shareholders. Shareholders do not have direct ownership rights over the company's property; instead, their interest lies in the shares they hold.

Key points about company property ownership:

  • The company can purchase, lease, or sell property independently
  • Shareholders' personal assets are protected from claims against the company's property
  • The company's property remains an exclusive asset of the company, not its individual members
  • Owning property in the company's name can provide tax benefits and asset protection

By owning property as a separate legal entity, a registered company can secure its assets, attract investors, and create a stable foundation for long-term growth and success.

6. Can Sue or Be Sued

Another advantage of company registration is that a registered company can sue or be sued in its name. As a separate legal entity, the company has the right to initiate legal proceedings or defend itself against legal claims, just like an individual. This ability to engage in legal matters independently is a crucial aspect of a company's legal status.

Key points about a company's legal standing:

  • The company can file lawsuits to protect its interests, such as intellectual property rights or breach of contract
  • It can defend itself against legal claims without involving its shareholders or directors personally
  • The company's legal actions remain separate from the personal legal matters of its members
  • This legal independence helps maintain the company's professional reputation and protects its shareholders

The ability to sue or be sued in its name provides a registered company with the necessary legal tools to safeguard its interests, resolve disputes, and maintain its professional standing in the business world.

7. Dual Relationship

One of the unique advantages of incorporation of company is the ability to have a dual relationship with its members. In a registered company, an individual can simultaneously hold multiple roles, such as being a shareholder, creditor, director, and employee. This flexibility allows for a more complex and adaptable business structure.

Key points about dual relationships in a company:

  • A person can be a shareholder and an employee at the same time
  • Directors can also be shareholders, allowing for a more vested interest in the company's success
  • Shareholders can provide loans to the company, becoming creditors while maintaining their ownership stake
  • These dual roles are legally permissible and common in registered companies

A dual relationship with the company fosters ownership, commitment, and multi-role contributions to its success.

8. Borrowing Capacity

Company registration significantly enhances a business's borrowing capacity. Registered companies have access to a wider range of financing options compared to sole proprietorships or partnerships. This increased borrowing capacity is a crucial advantage for businesses looking to expand, invest in new projects, or maintain financial stability.

Key points about a company's borrowing capacity:

  • Companies can issue debentures to raise capital from the public
  • Registered companies are seen as more credible and stable by banks and financial institutions
  • Larger financial assistance is available to companies, making borrowing more accessible
  • Companies can secure loans by offering their assets as collateral

Company registration boosts borrowing capacity, enabling growth, expansion, and operational stability for a competitive edge.

9. Equity Raising

Another significant advantage of company registration is the ability to raise equity funding. Registered companies, particularly private limited companies, have access to a broader pool of investors and can attract equity investments from various sources. This equity raising potential is crucial for businesses looking to expand, scale operations, and increase their market presence.

Key points about equity raising in a registered company:

  • Private limited companies can attract investments from angel investors and private equity firms
  • Equity funding provides growth capital without the burden of debt repayment
  • Public limited companies can raise funds through initial public offerings (IPOs) and list their shares on stock exchanges
  • Equity investments often come with strategic partnerships and valuable industry connections

The ability to raise equity funding through company registration opens up new avenues for business growth, allowing companies to tap into the expertise and resources of investors while maintaining control over their operations.

10. Brand Building

Company registration plays a vital role in brand building and establishing a strong business identity. By registering your company, you create a distinct and recognizable brand that sets you apart from competitors. A registered company name provides legal protection and prevents others from using a similar name, safeguarding your brand's uniqueness.

Key points about brand building through company registration:

  • A registered company name adds credibility and professionalism to your brand
  • It helps build trust among customers, suppliers, and partners
  • Legal protection for your brand name reduces the risk of confusion and infringement
  • A strong brand identity attracts customers, investors, and top talent

Registering a company builds a strong, lasting brand and sets the foundation for long-term success.

What Does Online Company Registration Entail?

The Companies Act of 2013 has made the process of company registration more streamlined and accessible through online means. The process involves several steps, including:

Key points about brand building through company registration:

  1. Selecting the type of company (Private Limited, Limited Liability Partnership, etc.)
  2. Applying for a Director Identification Number (DIN)
  3. Obtaining Digital Signature Certificates (DSC)
  4. Filing the necessary forms with the Ministry of Corporate Affairs (MCA)

It is crucial to verify the availability of the desired company name and ensure compliance with legal requirements throughout the registration process.

Types of Companies You Can Register

The Companies Act of 2013 provides for various types of companies that can be registered, each with its own characteristics and requirements. Some of the common types include:

  1. Private Limited Company: A company with a minimum of two and a maximum of 200 shareholders, with restrictions on the transfer of shares.
  2. Public Limited Company: A company that can have an unlimited number of shareholders and can offer shares to the public.
  3. One Person Company (OPC): A company with a single shareholder and director, suitable for solo entrepreneurs.
  4. Limited Liability Partnership (LLP): A partnership structure that provides limited liability to its partners.
  5. Section 8 Company: A non-profit company formed for charitable or social purposes.

Choosing the right type of company depends on factors such as business size, goals, and structure.

Conclusion

Registering a company is a strategic decision that offers numerous advantages for businesses. From limited liability protection to enhanced credibility and access to funding, company registration provides a solid foundation for growth and success. By understanding the benefits of company registration, entrepreneurs can make informed decisions and position their ventures for long-term prosperity.

Frequently Asked Questions

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Register your Limited Liability Partnership in just 1,499 + Govt. Fee

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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

What benefits does online registration offer compared to offline registration of a company

  • Online registration streamlines the process, making it faster and more convenient.
  • It eliminates the need for physical submission of documents, saving time and effort.
  • Online registration allows for real-time tracking of the application status.

How does online company registration simplify the process and help save time?

  • Online registration enables entrepreneurs to complete the process from anywhere, at any time.
  • Digital submission of documents eliminates the need for physical visits to government offices.
  • The online system guides users through the process, minimizing errors and delays.

Can there be cost benefits to registering a company online?

  • Online registration often comes with reduced fees compared to offline methods.
  • It eliminates the need for intermediaries or agents, saving on additional costs.
  • Digital submissions reduce paperwork and associated expenses.

What assistance and resources can be found when registering a company online?

  • Online portals often provide step-by-step guides and tutorials for the registration process.
  • FAQs and help sections address common queries and concerns.
  • Customer support is usually available through email, chat, or telephone for assistance.

How safe is the online company registration process?

  • Online registration portals, such as the MCA portal, employ secure encryption and data protection measures to ensure the safety of sensitive information.
  • The use of Digital Signature Certificates (DSC) adds an extra layer of security and authentication to the process.
  • Reputable online service providers adhere to strict data privacy and security standards to safeguard client information.

Swagatika Mohapatra

Swagatika Mohapatra is a storyteller & content strategist. She currently leads content and community at Razorpay Rize, a founder-first initiative that supports early-stage & growth-stage startups in India across tech, D2C, and global export categories.

Over the last 4+ years, she’s built a stronghold in content strategy, UX writing, and startup storytelling. At Rize, she’s the mind behind everything from founder playbooks and company registration explainers to deep-dive blogs on brand-building, metrics, and product-market fit.

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Equity Dilution in India - Definition, Working, Causes, Effects

Equity Dilution in India - Definition, Working, Causes, Effects

Equity dilution is a concept that every founder, early investor, and shareholder needs to understand, especially as a company moves beyond the seed stage and starts to scale. It typically comes into play during funding rounds, when issuing Employee Stock Option Plans (ESOPs), onboarding strategic partners, or executing mergers and acquisitions.

In India’s rapidly evolving startup and investment ecosystem, it is really important to know how equity dilution works to maintain control, value, and strategic direction in a company.

This blog aims to simplify the concept of equity dilution by explaining what it is, how and why it happens, its implications for founders and shareholders, and, most importantly, how it can be managed smartly within the Indian business and regulatory ecosystem.

Table of Contents

What is Equity Dilution?

Equity dilution refers to the reduction in existing shareholders’ ownership percentage due to the issuance of new shares. Although it doesn't necessarily mean a loss in actual monetary value, it does mean reduced voting power, ownership stake, and potential control over the company.

For example, if a founder owns 50% of a company before a funding round and 40% after new shares are issued to investors, the 10% drop is equity dilution.

Causes of Equity Dilution in India

Several scenarios in India lead to equity dilution:

  • Fundraising through equity: When a company raises capital by issuing new shares to investors (angel, VC, PE).
  • ESOPs (Employee Stock Option Plans): Issuing shares to employees for retention and motivation.
  • Convertible instruments: When convertible debentures or notes convert to equity.
  • Mergers and acquisitions: New shares issued as part of a transaction.
  • Bonus or rights issues: Depending on the structure, these can also dilute holdings if not proportionally subscribed.

Impact of Equity Dilution

Dilution can affect stakeholders in various ways:

  • Founders: Loss of control or voting power if too much equity is given away early.
  • Investors: Reduced ownership percentages, which may affect decision-making influence.
  • Employees: If ESOPs are diluted too often, their potential upside gets reduced.
  • Company valuation: Though dilution reduces percentage ownership, it can lead to growth and higher valuations, offsetting the effect in monetary terms.

How Does Share Dilution Happen?

Share dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. While the total number of shares increases, each existing shareholder’s slice of the pie becomes smaller — unless they participate in the new issue.

Here are the most common ways share dilution happens in India:

1. Fundraising (Equity Rounds)

During seed, Series A, or later funding rounds, new investors are issued fresh equity. To accommodate them, the company increases its authorised and paid-up share capital, diluting the percentage held by existing shareholders.

Example:
A founder owns 100% of a startup with 1,00,000 shares. After raising funds from investors who are issuing 50,000 new shares, the founder’s ownership drops to 66.67%.

2. Issuing ESOPs (Employee Stock Option Plans)

Startups often set aside 5–15% of their cap table for ESOPs to attract and retain top talent. These options, once vested and exercised, convert into shares — reducing the percentage stake of other shareholders.

3. Conversion of Convertible Instruments

Instruments like convertible notes, SAFE (Simple Agreement for Future Equity), or CCDs (Compulsorily Convertible Debentures) convert into equity at a future date. When they convert, new shares are issued, which dilute existing ownership.

4. Mergers or Acquisitions

In some mergers or acquisitions, equity may be offered as part of the consideration to the merging entity or its shareholders. This leads to the issuance of new shares and causes dilution.

5. Bonus Shares to Select Stakeholders

Occasionally, a company might issue bonus shares to certain shareholders or employees as incentives, which can result in uneven dilution.

Reasons for Equity Dilution

  • Capital infusion: To fund growth, R&D, hiring, marketing, etc.
  • Strategic partnerships: Issuing equity to partners or advisors.
  • Debt conversion: Debt turning into equity through convertible notes.
  • Regulatory compliance: SEBI regulations may require public companies to maintain a certain free float, triggering new issuance.

Managing Equity Dilution in India

Equity dilution is inevitable as your startup grows — but managing it smartly can protect both your control and long-term value. Indian founders must understand the tools, strategies, and legal frameworks available to reduce unnecessary dilution and align all stakeholders.

1. Plan Your Cap Table Early

Create a 5–7 year cap table projection. Visualise future funding rounds, ESOP pools, convertible instruments, and expected dilution at each stage.

2. Raise What You Need, Not What You Can

Avoid over-raising in early rounds. Each round of funding comes at the cost of equity. Only raise what’s required to hit the next set of milestones.

3. Negotiate Better Valuations

Valuation is key to how much equity you give up. Strengthen your fundamentals, traction, and pitch to negotiate higher valuations, thus minimising dilution per rupee raised.

4. Use Convertible Instruments Strategically

Instruments like SAFE notes or CCDs can delay dilution until a priced round. Use them in early or bridge rounds to preserve equity while bringing in capital.

5. Be Thoughtful with ESOP Allocation

ESOPs are critical to building a strong team, but don’t over-allocate too early. Start with a lean pool (5–10%) and expand as your team grows and funding allows.

6. Include Anti-Dilution Provisions (If You're an Investor or Co-Founder)

While often investor-friendly, certain anti-dilution clauses can protect your equity in down rounds. Founders should understand these clauses and negotiate fair terms.

7. Consider Non-Dilutive Capital

Explore grants, government schemes (like Startup India Seed Fund, MeitY TIDE, or NIDHI), or revenue-based financing. These options offer capital with no equity dilution.

8. Maintain Founder Alignment

If co-founders have significantly unequal stakes, align expectations early. Future dilution can compound tensions if not addressed at the start.

How Shareholders Can Handle Equity Dilution?

  • Pre-emptive rights: Ensure agreements include rights to participate in future rounds to maintain shareholding.
  • Anti-dilution clauses: Particularly for investors, these can protect them from value dilution in down rounds.
  • Monitor ESOP pools: Oversized ESOP pools dilute all shareholders.
  • Regular cap table reviews: Stay updated to avoid surprises in ownership shifts.

Conclusion

Equity dilution is a natural part of a growing business, especially in India's thriving startup and investment landscape. While it may seem negative on the surface, it often enables access to capital, talent, and partnerships that fuel long-term value creation. 

The key lies in understanding, planning, and strategically managing dilution to protect stakeholder interests while supporting the company’s growth.

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Register your business
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Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
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Register your One Person Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your Business starting at just 1,499 + Govt. Fee

Register your business
rize image

Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

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

Why does equity dilution occur?

Equity dilution happens when a company issues new shares, usually during funding rounds, ESOP allocations, or while converting instruments like convertible notes. This increases the total number of shares, reducing the ownership percentage of existing shareholders.

Is equity dilution always bad?

Not always. Dilution is a natural part of growth, especially if you're raising capital to build a bigger, more valuable company. What matters is how much value you're gaining in return for the equity you're giving up.

How can I protect myself from equity dilution?

  • Plan your cap table in advance
  • Negotiate better valuations
  • Use convertible instruments smartly
  • Keep ESOP pools lean
  • Explore non-dilutive funding (grants, revenue-based capital)
  • Use pre-emptive rights to maintain your stake in future rounds

What is a pre-emptive right?

Pre-emptive rights allow existing shareholders to buy new shares before they're offered to others. This helps them maintain their ownership percentage and avoid unwanted dilution during future fundraising rounds.

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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Registering a Freelance Business in India: What You Need to Know

Registering a Freelance Business in India: What You Need to Know

The freedom to work on your own terms, choose your clients, and chart your career path makes freelancing an attractive option for many Indians today. With the rise of the digital economy, more professionals are ditching traditional jobs in favour of independent work.

Along with flexibility and autonomy comes the responsibility of understanding the legal, tax, and business aspects of freelancing in India. Many beginners wonder:

  • Do I need to register as a freelancer?
  • What about taxes and GST?
  • How do I protect myself legally with clients?

We’ll simplify everything you need to know, from why freelancing is worth considering to taxes, contracts, and registration requirements, so you can confidently start your freelance journey.

Table of Contents

Why Start Your Own Freelancing Business in India?

Freelancing is much more than just escaping the 9-to-5 grind. It’s a path to professional freedom and personal growth. Here’s why many choose to start their freelance business in India:

  • Independence: You control your schedule, projects, and clients.
  • Earning Potential: With the right skills, you can earn more than a fixed salary, often in foreign currency.
  • Learning Curve: Freelancing pushes you to learn business skills, client management, negotiation, and personal branding that regular jobs may not offer.
  • Creative Freedom: You get to work on diverse projects across industries, honing your skills and building a versatile portfolio.
  • Work-Life Balance: Freelancers often have more flexibility to balance personal and professional commitments.

If you value autonomy and are willing to take charge of your career, freelancing can be a rewarding and liberating choice.

Turn your freelance hustle into a registered business—get started with expert-led Company registration today.

What Are the Benefits of Freelancing in India?

Freelancing in India comes with tangible benefits that extend beyond financial gains:

1. Flexibility and Remote Work

Work from anywhere, anytime. Freelancers aren’t tied to office spaces or strict schedules, making it easier to balance other life priorities.

2. Access to Global Clients

With platforms like Upwork, Fiverr, LinkedIn, and direct outreach, Indian freelancers have access to clients worldwide and often earn in USD, EUR, or GBP.

3. Diverse Projects and Skill Growth

You can work on multiple projects across different industries, which accelerates skill development and keeps work exciting.

4. Building a Personal Brand and Network

Freelancing pushes you to market yourself, opening doors to collaborations, partnerships, and a professional network that can lead to bigger opportunities.

5. Control Over Earnings

Unlike fixed salaries, freelancing income has the potential to grow as your skills, client base, and rates increase.

Freelancer’s Tax in India

As a freelancer, you’re considered a self-employed professional under Indian tax laws. Here’s what you need to know about taxes:

GST for Freelancers

If your annual turnover exceeds ₹20 lakh (₹10 lakh for Northeastern states), GST registration is mandatory under the GST Act. GST applies at 18% for most professional services, but you can claim Input Tax Credit on business-related expenses.

Freelance Income Tax

Freelancers are taxed under the “Profits and Gains from Business or Profession” head. You are subject to regular income tax slabs applicable to individuals.

Feature Description
Shared Objectives Both aim to achieve mutual business goals.
Resource Pooling Involves combining assets, expertise, or capital.
Contract-Based Governed by agreements that outline roles, rights, and responsibilities.
Profit Sharing Both involve sharing profits, though the ratio may differ.
Collaborative Decision-Making Decisions are made collectively or as per agreed terms.
Risk Sharing Losses and liabilities are often shared based on contribution or agreement.

Freelance Contract

A written agreement between a freelancer and a client that clearly outlines the scope of work, payment terms, deadlines, and other important conditions of the project. It helps protect both parties by setting clear expectations and serves as a legal safeguard in case of disputes.

Key Clauses to Include in a Freelance Contract:

  1. Scope of Work: Define the exact services you will provide. Include deliverables, timelines, and expectations.

  2. Payment Terms: Payment amount, mode, currency, and schedule. Specify advance payments, milestones, and late fees.

  3. Confidentiality Clause: Protect sensitive client information and intellectual property rights.

  4. Termination Clause: Define under what circumstances either party can terminate the contract.

  5. Revision & Change Requests: Set clear terms for additional work or revisions.

  6. Dispute Resolution: Choose a method for resolving disagreements (e.g., mediation, arbitration).

  7. Jurisdiction Clause: State the legal jurisdiction under which the contract will be governed (Indian Contract Act, 1872).

Frequently Asked Questions (FAQs)

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Register your Business at just 1,499 + Govt. Fee

Register your business
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Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
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Register your One Person Company in just 1,499 + Govt. Fee

Register your business
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Register your Business starting at just 1,499 + Govt. Fee

Register your business
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Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

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

Do freelancers pay tax in India?

Yes, they do. Freelancers in India are taxed just like any other self-employed individual. Your freelance income is treated as “Profits and Gains from Business or Profession” under the Income Tax Act, and you need to pay tax based on your total annual income.

Do freelancers need to file an ITR?

Yes, if your total income exceeds ₹2.5 lakhs in a financial year (₹3 lakhs if you're above 60), filing an Income Tax Return (ITR) is mandatory. Most freelancers use ITR-3 or ITR-4 (under the Presumptive Taxation Scheme), depending on their income and the nature of their business.

What is the TDS rate for freelancers?

If a client pays you more than ₹30,000 in a financial year, they’re usually required to deduct 10% TDS (Tax Deducted at Source) under Section 194J before making the payment. This amount gets credited to your PAN, and you can adjust it while filing your ITR.

Do freelancers need to pay both GST and income tax?

It depends.

  • Income Tax is always applicable if your annual income crosses the basic exemption limit.

GST (Goods and Services Tax) is required only if your annual turnover exceeds ₹20 lakhs (₹10 lakhs for special category states) or if you work with clients outside India (export of services), in which case registration is often recommended, even if optional.

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Basanth Verma
shopeg.in
Exciting news! Incorporation of our company, FoxSell, with Razorpay Rize was extremely smooth and straightforward. We highly recommend them. Thank you Razorpay Rize for making it easy to set up our business in India.
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foxsell.app
We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

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TBS Magazine
Hey, Guys!
We just got incorporated yesterday.
Thanks to Rize team for all the Support.
It was a wonderful experience.
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Dhaval Trivedi
Nayan Mishra
https://zillout.com/
Smooth onboarding, seamless incorporation and a wonderful community. Thanks to the #razorpayrize team! #rizeincorporation
Dhaval Trivedi
Basanth Verma
shopeg.in
Exciting news! Incorporation of our company, FoxSell, with Razorpay Rize was extremely smooth and straightforward. We highly recommend them. Thank you Razorpay Rize for making it easy to set up our business in India.
@foxsellapp
#razorpayrize #rizeincorporation
Dhaval Trivedi
Prakhar Shrivastava
foxsell.app
We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
TBS Magazine
Hey, Guys!
We just got incorporated yesterday.
Thanks to Rize team for all the Support.
It was a wonderful experience.
CHEERS 🥂
#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
Nayan Mishra
https://zillout.com/