One Person Company Registration Fees in India

Understanding the Importance of a Co-Founder Agreement

A co-founders agreement is a governance framework. It provides clarity on expectations, defines legal boundaries, and establishes protocols for decision-making and dispute resolution.

Without it, startups risk misalignment, equity disputes, or founder exits that can derail momentum. Having this agreement from day one ensures:

• Legal protection for all founders
• Clear accountability
• Faster resolution in case of conflicts
• Long-term business stability

How to Determine Roles?

Before you split the equity or assign job titles, align on why you’re building this company. Once your mission is clear, it becomes easier to define what roles each founder should play.

Not all founders are the same, and not all will lead the same functions. Role clarity prevents overlap, power struggles, and decision-making delays.

Here’s a quick overview of typical leadership roles:

• CEO (Chief Executive Officer): Sets vision, makes high-level decisions, and manages investors.
• COO (Chief Operating Officer): Manages day-to-day operations, hiring, and internal workflows.
• CFO (Chief Financial Officer): Oversees finances, fundraising, and budgeting.
• President: Often works alongside the CEO, focusing on strategy execution or external relations.
• CMO (Chief Marketing Officer): Leads branding, marketing, and growth strategy.
• CTO (Chief Technology Officer): Drives product development and tech architecture.

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How to Split Equity?

One of the trickiest parts of a co-founder agreement is deciding who gets what percentage of the company.

Spoiler alert: Equal splits are often unfair. While it might feel diplomatic to go 50/50 (or 33/33/33), it rarely reflects the actual contributions of each founder. Equity should reward value creation, not just presence.

Consider these factors:

• Who initiated the idea?
• Level of early involvement and contribution
• Full-time vs part-time commitment
• CEO or leadership responsibilities
• Prior experience, networks, and domain expertise

It’s advisable to use structured frameworks or equity calculators and ensure all discussions are documented. Vesting schedules (typically four years with a one-year cliff) should also be agreed upon and reflected in the agreement.

Compensation and Salary Expectations

Most early-stage startups operate with limited capital. Founders often defer salaries or draw nominal compensation. However, clarity on current and future remuneration is essential.

The agreement should include:

• Initial salary (if any) or deferred compensation model
• Milestones or triggers for compensation reviews (e.g., seed funding, profitability)
• Equity-to-cash trade-offs, especially for operational founders
• Provisions for salary revisions approved by a board or mutual consent

Decision-Making and Dispute Resolution

Defining decision rights helps prevent operational gridlock and ensures strategic alignment. The co-founders agreement should outline the following:

• Voting rights: Specify which decisions require a majority, supermajority, or unanimous consent (e.g., capital raise, hiring key executives, M&A decisions).
  
• Dispute resolution mechanisms: Include mediation and arbitration clauses to resolve disagreements outside of court.
  
• Deadlock provisions: Outline how to handle situations where founders are split, potentially via third-party adjudicators or rotating authority.
  
• Exit protocols: Determine how decisions are made in case a founder decides to leave or is asked to step down.

Exit Strategies and Buyout Clauses

Exit events, whether planned or unforeseen, can significantly impact the startup’s equity structure. A co-founders agreement should detail:

• Voluntary exit protocols: Including share sale rights, notice periods, and replacement planning.
• Involuntary exit terms: For cause (e.g., misconduct) or no-fault exits (e.g., health issues).
• Buyout clauses: How shares are valued (e.g., pre-agreed formula, external valuation), who has the first right to buy, and what triggers a forced sale.
• Non-compete clauses: Restrictions on joining or starting competing ventures post-exit.

Without a clear exit plan, founder departures can become messy, expensive, and emotionally draining.

Non-Disclosure Agreements (NDAs)

Startups thrive on ideas, data, and speed. A loose-lipped founder or ex-founder can derail all of that. To protect your IP, customers, and strategy, include a strong non-disclosure clause in the co-founder agreement. It should cover:

• What qualifies as “confidential information”?
• How long the NDA lasts (often 1–3 years post-exit)
• Consequences of breaching the NDA

Founders should also agree on how sensitive materials like business plans, prototypes, and user data are handled upon exit.

Death, Disability, and Divorce Clauses

Contingency planning for life events is often overlooked but is essential to safeguard the business. Your agreement should include:

• Death clause: Specifies who inherits equity, buyback options for the company, and whether heirs receive any operational role.
  
• Disability clause: Details how long a founder can be inactive before reevaluation and whether shares can be repurchased or roles reassigned.
  
• Divorce clause: Ensures founder shares don’t get transferred to a spouse, with provisions for company buyback to retain control.

These clauses protect both the business and surviving founders from unforeseen legal and financial disruptions.

Frequently Asked Questions

Eligibility

• Must be registered under the Government of India's MSME Development Act of 2006.
• Must be a company registered under the Companies Act of the Government of India and must meet the investment restrictions in plant and machinery or equipment set forth in the Government of India's MSME Development Act 2006.
• Must be a technology incubation enterprise or a startup registered as a company and located in an incubation center or park (in this case, a certification from the incubation center or park is required).
• Must be an STP Unit that has been approved.
• The invention must be in the field of electronics or information and communication technologies.

List Of Important Documents Required

1. Scanned copy of MSME Registration Certificate (For MSME Units)
2. Scanned copy of Company Registration Certificate (For Companies)
3. Scanned copy of STP Registration (For STP Units)
4. Scanned copy of the Registration Certificate issued by a competent authority and a certification from the incubation Centre/Park (For Technology Incubation Enterprise/Startup)
5. Scanned copy of the last audited Balance Sheet
6. Copy of product brochure, if any
7. Copy of latest Annual Report, if any
8. Copy of official filing receipt (OFR) with the Indian Patent Office
9. Copy of waiver under section 39 of the Indian Patent Act (Outside India)
10. Copy of proof of the application under PCT/ Paris Convention or Direct International Filing
11. Copy of technical writeup of invention as per the format of technical writeup
12. Patent search report
13. Scanned copy of Details for transfer of e-payments as per the format
14. Scanned copy of the Declaration form duly signed and sealed as per the format
15. A statement by the auditor of the enterprise that they fulfill the criteria of investment in plant and machinery or investment in capital equipment (as the case may be) as stipulated in the MSMED Act 2006.

Application procedure for Startups

• Visit the official website http://www.ict-ipr.in/sipeit/login.
• Create a User account by logging in after filling out all the details.
• Once “Login” is created, one can apply online for the scheme by submitting the required documents.

Selection OR Acceptance of Startups

The acceptance of startups under this scheme depends on the following criteria:

• For a particular invention, there can be one application for foreign filling.
• An Indian patent attorney firm with at least five years of experience in handling international patent applications handles and processes patent applications.
• Only five applications per financial year will be considered for reimbursement from a single applicant.
• The applicant should have already filed a patent application with the complete specification for the said invention with the Indian Patent Office.
• International patent filing options include the PCT route, the Paris Convention route, or filing directly in a foreign country of the innovator's choice.

Benefits

• This scheme provides financial support for the International filing of patents at different stages, including expenses in filing and processing.
• The maximum amount reimbursed per innovation shall be Rs 15 lakhs or 50% of the total expenditures paid in filing and processing a patent application up to grant, whichever is less.
• Under the scheme, financial support is also provided to Education Institutes, Meity societies, etc., for organizing seminars & workshops on IPR awareness.

Frequently Asked Questions

Startup Definition as per the Startup India Action Plan

According to the Startup India Action Plan, a startup is defined as:

• An entity that is less than five years old from the date of incorporation or registration.
• Has a turnover not exceeding INR 25 crore in any financial year.
• Is working toward innovation, development, or improvement of products, processes, or services; or has a scalable business model with a high potential for employment generation or wealth creation.

Additionally, the entity must not be formed by splitting up or reconstructing an existing business.

Startups can access tax benefits only after certification from the Inter-Ministerial Board (IMB), which examines the business model, innovation, and scalability before granting approval.

Eligibility for Startup India

To qualify under the Startup India scheme, a business must meet the following eligibility conditions:

Age of the Company:

The entity must be less than 10 years old from the date of incorporation or registration.

Type of Entity:

It should be registered as a Pvt. Ltd. Company, Partnership Firm, or Limited Liability Partnership (LLP).

Turnover Limit:

The startup’s annual turnover must not exceed INR 100 crore in any financial year since incorporation.

Innovation Focus:

The startup should aim to develop innovative products, processes, or services, or have a scalable business model with high job creation or wealth generation potential.

Non-Reconstruction Clause:

The startup must not be formed by restructuring or splitting up an existing business.

Startups Eligible for Startup India Tax Exemptions & Incentives

To qualify, startups must:

• Be recognised under DPIIT (Department for Promotion of Industry and Internal Trade).
• Be involved in innovating or improving existing products, services, or processes.
• Be supported or funded by:
  
  • Recognised incubators or government schemes, or
  • SEBI-registered venture capital funds, or
  • Hold granted patents that support innovation.

Startups that lack innovative value, engage in routine business models, or do not contribute to technological advancement are not eligible for these tax incentives.

Obtaining Startup Tax Exemption under the Startup India Initiative

To avail tax exemptions, startups must go through a formal approval and verification process by the Inter-Ministerial Board (IMB) constituted by the Department for Promotion of Industry and Internal Trade (DPIIT) to qualify for tax exemptions.

Steps to Obtain Startup Tax Exemption:

1. Get DPIIT Recognition:

Before anything else, your entity must be a DPIIT-recognised startup. This involves registering on the Startup India portal and certifying your eligibility (age, turnover, entity type, etc.).

2. Prepare Your Application & Documents:

This is the most crucial step. The IMB needs to be convinced of your startup's genuine innovation. Your application must be supported by a detailed set of documents, which typically includes:

• Business Documents: Your Memorandum of Association (MoA) or LLP Deed.
• Financials: Audited annual accounts and Income Tax Returns (ITRs) for the last three financial years (or since incorporation, if newer).
• The "Innovation" Proof (Pitch Deck / Video): A presentation and/or a short video (under 2-5 minutes) that clearly explains:
  
  • What your product/service is.
  • What new problem it solves.
  • How it is innovative (e.g., a new technology, a disruptive process, or a significant improvement on an existing solution).
  • Your business model and scalability.
• Shareholding Information: Details of your current shareholding pattern.
• CA Certificate: A certificate from a Chartered Accountant verifying that your startup has not been formed by splitting up or reconstructing an existing business.

3. Submit the Application:

The application for tax exemption (Form 80-IAC) is also filed through the Startup India portal. You will upload all your prepared documents and fill in the required fields.

4. IMB Verification:

The IMB board (which includes members from DPIIT, Department of Biotechnology, etc.) will formally review your application. Their entire focus is to determine if your startup is "working towards innovation, development or improvement of products or processes or services" and is not just a conventional business.

5. Receive Certification:

If the IMB is satisfied, you will be granted the certificate of eligibility. You can then use this certificate to claim the 100% tax deduction when filing your Income Tax Returns (ITR) for any three consecutive years within your first ten years.

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Common Mistakes: Why IMB Applications Get Rejected

Many startups get DPIIT recognition but fail the IMB certification. Be careful to avoid these common pitfalls:

• Insufficient Proof of Innovation: This is the #1 reason for rejection. Simply having a new website or app is not enough. You must prove you are solving a problem in a new way, have a new technology, or are creating a unique, scalable process.
• Incomplete or Vague Pitch Deck: If the board cannot understand what your business does or why it's innovative within a few minutes, your application will be rejected or deferred.
• Incorrect Documents: Submitting unsigned financials, a missing CA certificate, or an incomplete MoA will lead to rejection on technical grounds.
• Reconstruction of an Old Business: The IMB is strict about this. If your "startup" is just an old business (e.g., a consultancy or services firm) repackaged under a new name to avoid taxes, it will be rejected.
• Lack of Scalability: The IMB also looks for businesses with high potential for wealth creation or employment generation. A small lifestyle business, even if innovative, may not qualify.

Frequently Asked Questions (FAQs)