Startup India Scheme: Eligibility Criteria, Benefits & Application Details

Why Start a Business in India as a Foreigner?

India offers a compelling value proposition for global business owners:

• Fast-growing economy: India is among the top emerging markets with consistent GDP growth.
  
  
• Large consumer base: With over 1.4 billion people and a rising middle class, the domestic market is vast and varied.
  
  
• Startup-friendly policies: Programs like Startup India, Make in India, and Digital India support new ventures with tax benefits, funding access, and ease of registration.
  
  
• Improved ease of doing business: Recent reforms have simplified company incorporation, tax filing, and compliance.
  
  
• Strategic location: India’s proximity to other Asian markets makes it a strong base for regional operations.
  
  
• Skilled talent: A large English-speaking, tech-savvy workforce makes it easier to scale.
  
  
• Cost-effective operations: Lower labour and operational costs compared to many developed markets.

Additionally, FDI relaxations across sectors like tech, manufacturing, and services have made India a preferred destination for companies like Amazon, IKEA, and Walmart.

Popular Business Structures for Foreigners in India

Foreign nationals looking to start a business in India can choose from a few key structures:

• Private Limited Company (Pvt Ltd): Most preferred structure; allows 100% FDI in most sectors.
• Limited Liability Partnership (LLP): Suitable for service businesses and professional firms; FDI permitted in select cases.
• Liaison Office: Ideal for companies wanting to explore or represent without full operations.
• Branch Office: Allows foreign companies to conduct full-scale business in India.
• Project Office: Meant for foreign companies executing specific projects.

Note: One Person Company (OPC) and sole proprietorships are not allowed for foreign nationals or NRIs due to FDI restrictions.

Looking to register a business in India? Explore private limited company or LLP options with expert help today.”

Type of Company that NRIs and Foreign Nationals Can Register

While OPC is off the table, foreign nationals and NRIs can register the following:

• Private Limited Company
• Public Limited Company
• Limited Liability Partnership (LLP) – subject to FDI conditions

Under automatic FDI routes, many sectors do not require prior government approval for investment. However, some sectors are still under the approval route or have FDI caps.

The Private Limited Company remains the most flexible and founder-friendly choice, especially for technology, services, and product-based businesses.

Can a Foreigner Own 100% of an Indian Company?

Yes! Foreign nationals can own 100% of equity in Indian companies, provided the business operates in a sector under the automatic FDI route. This means:

• No need for government approval in most sectors.
• A resident Indian director is mandatory (must stay in India for at least 182 days in a financial year).
• Some sectors like defence, telecom, and insurance have FDI caps or require prior approvals.

Pre-requisites for Registration of a Private or Public Limited Company

Private Limited Company:

• Minimum 2 shareholders and 2 directors
• At least 1 Indian resident director
• Registered office address in India
• Digital Signature Certificate (DSC) for all directors
• Company name approval from the MCA

Public Limited Company:

• Minimum 7 shareholders and 3 directors
• Other requirements same as above

For foreign nationals, documents must be apostilled or notarised as per regulatory norms.

Documents Required for Foreign Directors & Shareholders

Foreign nationals need to submit the following documents:

• Passport (identity proof): notarised/apostilled
• Address Proof (bank statement, utility bill, not older than 2 months)
• Passport-size photograph
• Digital Signature Certificate (DSC) application form, duly signed
• Board resolution or power of attorney (in case of a foreign entity shareholder)

If applicable:

• PAN Card (mandatory for directors earning income in India)

 Process to Register a Company in India as a Foreigner

1. Obtain DSCs for all proposed directors
2. Apply for name approval on the MCA portal
3. Draft incorporation documents (MoA, AoA, declarations, etc.)
4. File incorporation application online via SPICe+ form
5. Receive Certificate of Incorporation from MCA
6. Apply for:
   
   • PAN & TAN
   • GST Registration (if applicable)
   • Bank account in the company’s name
     
     

Note: One resident Indian director is compulsory.

Taxation for Foreign-Owned Companies in India

Companies registered in India (even if foreign-owned) are treated as domestic companies for tax purposes:

• Corporate Tax: 25% (plus cess and surcharge) if turnover ≤ ₹400 crore
  
  
• GST: Mandatory if turnover exceeds ₹20 lakh (or if interstate services are provided)
  
  
• TDS: Deduction obligations apply when making payments to employees, contractors, or foreign entities
  
  
• Transfer Pricing Regulations: Apply for transactions with foreign affiliates or holding companies
  
  

India has Double Tax Avoidance Agreements (DTAAs) with many countries to reduce tax burden.

Company Types for Foreign Nationals

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Conclusion

While foreign nationals cannot register an OPC in India due to FDI restrictions, there are multiple flexible options available with the Private Limited Company being the most recommended. With the right legal support and compliance, India offers a rich, growth-oriented environment for foreign entrepreneurs to launch and scale their ventures.

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What Is a Dormant Company?

Under the Companies Act, 2013, a dormant company refers to an entity that is temporarily inactive, with no significant accounting transactions during a financial year. The definition of a dormant company encompasses companies that are:

• Incorporated for future projects
  
• Established to hold assets or intellectual property
  
• Not engaged in any significant financial transactions
  

To be eligible for dormant company status, a company must meet the following criteria:

• No significant accounting transactions during the last two financial years
  
• No filing of financial statements and annual returns with the Registrar of Companies (ROC) in the preceding two financial years
  

It's important to note that a company can remain dormant for a maximum of five consecutive financial years. After this period, the company must either commence operations or apply for an extension of dormant status with the ROC.

Is a Dormant Company Allowed To Trade?

A dormant company is not allowed to conduct significant business transactions, such as:

• Buying or selling goods and services
  
• Engaging in revenue-generating operations
  
• Undertaking any other form of trade
  

However, a dormant company can carry out certain essential activities, including:

• Paying fees and fulfilling compliance requirements under the Companies Act or other applicable laws
  
• Maintaining its registered office and records
  
• Allotting shares to shareholders
  

Engaging in active trading or substantial business transactions may lead to the loss of dormant company status. Therefore, it is crucial for business owners to ensure that their dormant company remains compliant with the prescribed regulations.

A Brief Overview of Dormant Status Under the Companies Act 2013

Section 455 of the Companies Act 2013 introduced the concept of dormant companies to provide a legal framework for businesses that wish to temporarily suspend their operations while maintaining their legal status. This provision allows companies to:

• Preserve their assets and intellectual property
  
• Reduce compliance costs during periods of inactivity
  
• Keep their company name reserved for future projects
  

Meaning of Inactive Company

An inactive company, as per the Companies Act 2013, is a company that:

• Has not conducted any significant financial transactions during the last two financial years
  
• Has not filed financial statements and annual returns with the ROC for the preceding two financial years
  

Reasons for Obtaining the Status of a Dormant Company

There are several reasons why a company may choose to obtain dormant company status:

• To preserve the company name for future business ventures
  
• To hold assets or intellectual property without actively engaging in business operations
  
• To reduce compliance costs and regulatory burdens during periods of inactivity
  
• To facilitate business restructuring or strategic planning
  
• To maintain legal status while the promoters or directors are unavailable due to personal reasons, such as illness, travel, or sabbatical
  

Top 5 Benefits of Opting for Dormant Company Status

1. Reduced Compliance Requirements: Dormant companies are subject to significantly fewer compliance obligations under the Companies Act 2013. This includes exemptions from holding frequent board meetings, appointing auditors, and filing detailed annual returns.
   
2. Cost Savings: By reducing compliance requirements, dormant companies can save on administrative expenses, such as auditor fees, legal costs, and filing charges. This can be particularly beneficial for small businesses and start-ups looking to minimise overhead costs.
   
3. Brand Name Protection: Registering as a dormant company allows businesses to protect their brand name and prevent others from registering a similar name. This is crucial for companies that have invested in building a strong brand identity and want to preserve it for future use.
   
4. Flexibility for Future Business Plans: Dormant company status provides businesses with the flexibility to reactivate their operations when the time is right. This can be particularly useful for companies that are waiting for market conditions to improve or for key personnel to return from extended absences.
   
5. Simplified Annual Filings: Dormant companies are required to file a simplified version of the annual return, known as Form MSC-3. This form requires less detailed information compared to the annual returns filed by active companies, reducing the administrative burden on business owners.
   

By weighing the benefits of dormant company status against the specific needs and goals of their business, entrepreneurs can make informed decisions about whether this legal structure is suitable for their situation.

Mandatory Requirements for Obtaining Dormant Status

To be eligible for dormant company status under Section 455 of the Companies Act 2013, a company must fulfil certain mandatory requirements:

1. No Significant Accounting Transactions: The company must not have carried out any significant accounting transactions during the financial year for which dormant status is sought. This excludes transactions related to the allotment of shares, payment of fees to the ROC, and maintenance of the company's office and records.
2. No Outstanding Liabilities: The company must not have any outstanding loans, whether secured or unsecured, or any other outstanding liabilities. If there are any outstanding unsecured loans, the company must obtain a no-objection certificate from the lenders before applying for dormant status.
3. No Pending Regulatory Actions: There should be no pending inspections, inquiries, or investigations against the company by any regulatory authorities. Additionally, no prosecution proceedings should be initiated against the company under any law.
4. Up-to-date Statutory Filings: The company must have filed all its pending returns, including annual returns and financial statements, with the ROC before applying for dormant status.
5. Shareholder Approval: The company must obtain approval from its shareholders through a special resolution passed at a general meeting. Alternatively, the company can obtain the consent of at least 3/4th of its shareholders by value through a written resolution.

How to File for Dormant Status: A Step-By-Step Guide

Filing for dormant company status involves a series of steps that must be followed in accordance with the provisions of the Companies Act 2013:

1. Convene a Board Meeting: The company's board of directors must convene a meeting to discuss and approve the proposal for obtaining dormant status. The board resolution should authorise the filing of the necessary application and documents with the ROC.
2. Obtain Shareholder Approval: The company must obtain approval from its shareholders either through a special resolution passed at a general meeting or through the written consent of at least 3/4th of the shareholders by value.
3. Prepare the Statement of Affairs: The company must prepare a statement of affairs, including a balance sheet and profit and loss account, as of the date of the application for dormant status. This statement should be verified by an affidavit from the company's directors.
4. File Form MSC-1: The company must file Form MSC-1 with the ROC, along with the necessary supporting documents, including the board resolution, shareholder approval, statement of affairs, and any other relevant documents as specified in the Companies Act 2013.
5. Pay the Prescribed Fees: The company must pay the prescribed fees for filing Form MSC-1, as specified in the Companies (Registration Offices and Fees) Rules, 2014.
6. Obtain Certificate of Dormant Status: Upon verification of the application and supporting documents, the ROC will issue a certificate of dormant status to the company in Form MSC-2.

It is important to note that the entire process of filing for dormant company status must be completed within 30 days of obtaining shareholder approval. Companies should seek the assistance of a qualified professional, such as a company secretary or chartered accountant, to ensure compliance with the prescribed procedures and timelines.

ROC Forms for Registering Dormant Company

• Form MSC-1: This form is used to apply for obtaining dormant company status. It must be filed with the ROC within 30 days of obtaining shareholder approval. The form requires details such as the company's name, registered office address, directors' particulars, and the reasons for seeking dormant status.
• Form MSC-3: This form is used to file the annual return of a dormant company. It must be filed within 30 days from the end of each financial year. The form requires details such as the company's financial position, shareholding pattern, and any changes in the directors' or registered office address.
• Form MSC-4: This form is used to apply for seeking the status of an active company. It must be filed with the ROC when a dormant company wants to commence business operations. The form requires details such as the company's name, registered office address, and the reasons for seeking active status.

Annual Compliance for Dormant Company

While dormant companies enjoy certain relaxations under the Companies Act 2013, they are still required to fulfil essential annual compliance tasks in four key areas:

1. Accounting and Financial Statements: Dormant companies must maintain proper books of accounts and prepare financial statements, including a balance sheet and profit and loss account, for each financial year. These financial statements must be approved by the board of directors and presented at the annual general meeting.
   
2. Statutory Audit: Dormant companies are required to appoint a statutory auditor to conduct an audit of their financial statements. However, dormant companies are exempt from the requirement of auditor rotation, which is mandatory for active companies.
3. Tax Return Filings: Dormant companies must file their income tax returns annually, even if they have not generated any income during the financial year. They are also required to comply with other applicable tax laws, such as the Goods and Services Tax (GST) and Tax Deducted at Source (TDS) provisions.
4. ROC Filings: Dormant companies must file an annual return in Form MSC-3 with the ROC within 30 days from the end of each financial year. This form requires details such as the company's financial position, shareholding pattern, and any changes in the directors' or registered office address.

By fulfilling these annual compliance requirements, dormant companies can ensure that they remain in good standing with the regulatory authorities and avoid any penalties or legal consequences.

Reactivation of a Dormant Company

A dormant company can be reactivated and commence business operations by following the prescribed procedure under the Companies Act 2013:

1. Convene a Board Meeting: The company's board of directors must convene a meeting to discuss and approve the proposal for reactivating the company. The board resolution should authorise the filing of the necessary application and documents with the ROC.
2. File Form MSC-4: The company must file Form MSC-4 with the ROC, along with the necessary supporting documents, including the board resolution and any other relevant documents as specified in the Companies Act 2013.
3. Pay the Prescribed Fees: The company must pay the prescribed fees for filing Form MSC-4, as specified in the Companies (Registration Offices and Fees) Rules, 2014.
4. Obtain Certificate of Active Status: Upon verification of the application and supporting documents, the ROC will issue a certificate of active status to the company in Form MSC-5.

Once the company has obtained the certificate of active status, it can commence business operations and is required to comply with all the provisions of the Companies Act 2013 applicable to active companies, including regular compliance requirements such as holding board meetings, filing annual returns, and appointing auditors.

Conclusion

Dormant company under Section 455 of the Companies Act 2013 is a strategic tool for businesses to preserve their legal identity while suspending operations. It allows companies to protect their brand name, reduce compliance costs, and maintain flexibility for future ventures. To benefit from this status, businesses must meet eligibility criteria and comply with statutory requirements. Seeking professional assistance is advisable to navigate the process effectively and avoid legal issues. This approach is ideal for future projects, asset holding, or temporary business pauses, offering a cost-effective solution for maintaining legal existence.

Frequently Asked Questions

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).
   
   • Obtain Class 2 Digital Signature Certificate (DSC) for the proposed directors
   • Apply for Director Identification Number (DIN) through Form DIR-3
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