Two things about starting up in India changed materially in 2026, and both are easy to miss. The rule requiring government approval for investment from countries sharing a land border with India — a blanket rule since 2020 — was replaced in May 2026 with a calibrated beneficial-ownership test. And the DPIIT startup framework was superseded in February 2026, raising the turnover ceiling and creating a separate deep tech category. This note covers the choice of entity, the incorporation itself, and the first-year deadlines that carry daily penalties.
- Four questions decide the entity. Raising institutional equity or issuing ESOPs means a private limited company and nothing else works. Any foreign shareholder points the same way.
- SPICe+ bundles more than people expect — PAN, TAN, EPFO, ESIC, a bank account, and profession tax and shops registration in the States that have integrated. GST is optional.
- A no-objection certificate no longer cures a name rejection. An MCA advisory of 12 March 2026 records case after case where the Centre disregarded an NOC because the name was still phonetically similar.
- INC-20A within 180 days is the deadline that bites: ₹50,000 on the company, ₹1,000 a day on each officer, and the Registrar may strike the company off.
- Angel tax is gone from assessment year 2025-26 — but section 68 on unexplained cash credits is not, and that is where startups now get caught.
- DPIIT recognition is not the tax holiday. Section 80-IAC needs a separate application to the Inter-Ministerial Board. This is the most common misunderstanding we see.
Choosing the form
Most of the comparison tables published on this subject list twenty criteria and help nobody. In practice four questions settle it.
- Will you raise institutional equity, or issue ESOPs?Then a private limited company. Nothing else works. An LLP has no share capital, cannot run a conventional ESOP, and is unattractive to venture investors. A one person company cannot take an outside shareholder at all without converting.
- Is it a professional or services practice with two or more owners and no external equity?Then an LLP. The annual compliance is Form 11 and Form 8 and nothing else, audit is required only above ₹40 lakh turnover or ₹25 lakh contribution, and the profit share is exempt in the partners' hands. The trade-off is a flat thirty per cent tax rate against twenty-two per cent for a company that opts into the concessional regime.
- Single founder, small scale, no outside money?A proprietorship is the cheapest thing that works, and a one person company buys limited liability at the cost of the full Companies Act compliance load. Note that a one person company cannot take foreign investment and is not eligible for DPIIT startup recognition.
- Is there any foreign shareholder?Then a private limited company. An LLP works only in sectors where one hundred per cent foreign investment is allowed on the automatic route with no performance conditions, and it cannot take foreign portfolio or venture capital investment. A proprietorship and a one person company are effectively closed.
How incorporation actually works
Everything runs through SPICe+ on MCA21 V3. Part A reserves the name; Part B does the incorporation and carries the linked registrations with it.
| Component | What it does |
|---|---|
| SPICe+ Part A | Name reservation. Up to two proposed names, fee ₹1,000, non-refundable. An approved name is valid for twenty days for a new company |
| SPICe+ Part B (INC-32) | The incorporation itself: DIN for up to three first directors, PAN, TAN, capital structure, the registered office with latitude and longitude geo-tagging, the NIC code for the business activity, and automatic assignment of the Registrar's jurisdiction |
| e-MOA (INC-33) and e-AOA (INC-34) | The memorandum and the articles, with the subscriber table auto-populated |
| AGILE-PRO-S (INC-35) | The linked registrations, below |
| INC-9 | Declaration by the subscribers and first directors, auto-generated in most cases. A foreign subscriber will usually need a physical apostilled copy instead |
What comes bundled: PAN and TAN, mandatory and at no separate fee; an EPFO and an ESIC establishment code, allotted whether or not you have employees yet; a bank account with the partner bank you select; profession tax in the States that levy it and have integrated with the form; and shops and establishment registration in the States covered. GST is optional — you can opt in through the form or register separately later. What is not bundled: import-export code, Udyam registration, any sectoral licence, DPIIT startup recognition and trade mark filing.
| Stage | Realistic working days |
|---|---|
| Digital signature for each subscriber and director, with video KYC | 1 to 2 |
| Name approval through Part A | 1 to 3, longer if it goes back for resubmission |
| Preparing the memorandum, articles, no-objection for the office, utility bill, consents and identity proofs | 1 to 2 |
| Central Registration Centre processing of Part B | 2 to 5 if the papers are clean |
| Certificate of incorporation with PAN and TAN | 7 to 12 working days end to end for a straightforward domestic case |
| Where there is a foreign subscriber | add 2 to 4 weeks for apostille or notarisation and courier |
| Bank account operational | 3 to 10 days after incorporation |
| GST registration, if applied for separately | 7 to 15 days, often with physical verification |
Why names get rejected, and what changed in March 2026
Rule 8 of the Companies (Incorporation) Rules, 2014 lists what is disregarded when two names are compared — and that list is the reason most rejections happen. The following do not make your name distinguishable from an existing one: the suffix, singular against plural, letter case, spacing and punctuation, tense variants, phonetic spellings and misspellings, internet domain extensions, the order of the words, definite and indefinite articles, spelling and grammatical variations, and complete translation or transliteration between Hindi and English.
The advisory made two further things explicit. You are expected to check the proposed name against the trade marks register yourself before filing, matching the NIC code to the trade mark class, and an NOC from the trade mark proprietor is required where there is a conflict. And the place of signing determines whether apostille or notarisation is needed, not the nationality or residence of the signatory — papers signed abroad need physical apostilled copies, papers signed in India go through as e-forms with evidence of a business visa or OCI card.
The other frequent grounds: a name resembling a registered trade mark in a related class without consent; a name made only of generic descriptive words, or only of a place name; regulated words such as Bank, Insurance, Mutual Fund, Venture Capital or Asset Management without the requisite declaration; an objects clause inconsistent with the name, such as Capital or Finance in the name of a trading company; a name needing prior Central Government approval under Rule 8B, such as National, Federal, Bureau or Authority; and a name identical to a company struck off within the last twenty years.
The first year, and the deadlines that carry daily penalties
| What | When | What it costs to miss |
|---|---|---|
| First board meeting | Within 30 days of incorporation | Penalty under section 172 |
| Appoint the first auditor — by the Board | Within 30 days of incorporation. If the Board fails, the members must do it at a general meeting within ninety days. The first auditor holds office until the first AGM | Section 147 |
| Form INC-22, if the registered office address was not given in SPICe+ | Within 30 days of incorporation | Section 12(8): ₹1,000 a day on the company and on every officer in default, capped at ₹1 lakh each |
| Share certificates to the subscribers, in Form SH-1 | Within two months of incorporation, and stamped under the State law generally within thirty days of issue | Section 56(6): ₹50,000 on the company and ₹50,000 on every officer in default. Unstamped certificates are a separate and much longer-running problem |
| Form INC-20A — declaration of commencement of business, confirming every subscriber has paid for the shares taken | Within 180 days of incorporation | Section 10A: ₹50,000 on the company and ₹1,000 per day on every officer up to ₹1 lakh. And under section 10A(3) the Registrar may strike the company off |
| Statutory registers and books of account | From incorporation, kept at the registered office | Sections 88(5) and 128(6) |
| Board meetings | Four in each financial year with a gap of not more than 120 days. A small company or a one person company needs only two, one in each half of the calendar year with a gap of at least ninety days | Section 172 |
| First annual general meeting | Within nine months of the close of the first financial year. Which usually means no AGM at all in the year of incorporation. A one person company is exempt entirely | Section 99 |
| Form AOC-4 and Form MGT-7 or MGT-7A | 30 days and 60 days after the AGM respectively | ₹10,000 plus ₹100 a day, capped at ₹2 lakh for the company |
Foreign investment: the land-border rule changed in May 2026
This is the most significant change of the year for anyone taking foreign money. Press Note 3 of 2020, issued on 17 April 2020, required government approval for any investment from an entity of a country sharing a land border with India, or where the beneficial owner was situated in or was a citizen of such a country — regardless of sector, regardless of amount and regardless of how small the interest was. In practice it caught a great many funds with a single limited partner from one of those countries.
The reporting, which is where the penalties are
| Form | Trigger | Deadline |
|---|---|---|
| FC-GPR | Issue of equity instruments to a person resident outside India | 30 days from allotment. And the allotment itself must happen within sixty days of receiving the money, failing which it must be refunded within fifteen |
| FC-TRS | Transfer of equity instruments between a resident and a non-resident | 60 days from the transfer or from receipt of consideration, whichever is earlier |
| Form ESOP | Grant of options to a person resident outside India | 30 days |
| Form CN | Issue or transfer of convertible notes by a startup | 30 days |
| Form DI | Downstream investment by an Indian entity owned or controlled by non-residents | 30 days |
| FLA return | Annual, where foreign investment is outstanding as at 31 March | 15 July every year |
A late filing is not fatal. The RBI's late submission fee runs at ₹7,500 flat for the annual and non-flow returns, and ₹7,500 plus 0.025 per cent of the amount for each year of delay for the flow returns, capped at the amount involved. It can be availed up to three years from the due date. Beyond three years the only route is compounding with the RBI, which takes three to six months.
DPIIT recognition, and what it does and does not get you
The framework was superseded by G.S.R. 108(E) dated 4 February 2026, which replaced the 2019 notification.
| Criterion | Until February 2026 | Now |
|---|---|---|
| Age of the entity | Up to 10 years | 10 years generally, 20 years for a deep tech startup |
| Turnover ceiling | ₹100 crore in any year since incorporation | ₹200 crore generally, ₹300 crore for deep tech |
| Eligible entities | Private limited company, registered partnership firm, LLP | The same, plus co-operative societies. A one person company, a proprietorship and a public company remain ineligible |
| Deep tech category | Did not exist | New. Solutions built on new scientific or engineering knowledge, high research spend as a share of total cost, significant novel intellectual property with a commercialisation plan, and substantial technical uncertainty in development |
| Entities already recognised | — | No re-application needed |
The application is free, self-certified and online, and usually approved in two to five working days.
Angel tax is gone. Section 68 is not.
Section 56(2)(viib), which taxed share premium above fair market value in the hands of a closely held company, is not applicable from assessment year 2025-26. The Income Tax Department says so in terms on its own website. It was removed for all investors, resident and non-resident, and for all companies — not merely for recognised startups — which makes the old DPIIT exemption route redundant.
The tax holiday needs a second application
This is the most common misunderstanding in the area. DPIIT recognition does not give you the tax holiday. Section 80-IAC gives a hundred per cent deduction of profits for any three consecutive assessment years out of the first ten, but it requires a separate application to the Inter-Ministerial Board, and only a few thousand startups have ever been granted it. The incorporation window was extended by five years by the Finance Act, 2025 and now runs to 31 March 2030. Minimum alternate tax still applies during the holiday years, and the return still has to be filed.
What recognition does give you, without more: self-certification of compliance under six labour laws and three environmental laws for five years; access to public procurement without prior turnover or experience criteria and with the earnest money deposit waived; an eighty per cent rebate on patent filing fees and fifty per cent on trade mark fees with expedited examination; eligibility for the seed fund and fund-of-funds schemes; and fast-track winding up in ninety days under section 59 of the Insolvency and Bankruptcy Code.
Six mistakes that cost money later
- Leaving the subscription money uninjected. It blocks INC-20A, the penalty runs daily, and the company can be struck off.
- Never issuing share certificates, or issuing them unstamped. Trivial to do at the time. If the company ever goes to market, or is sold, it becomes a three to six month adjudication with a State stamp office.
- Taking money before allotting, and spending it. Section 42 requires a separate bank account and prohibits using the money before Form PAS-3 is filed. This is not curable by a late filing.
- Picking a name that clashes with a trade mark. You may incorporate successfully and still be forced to rebrand later by the proprietor of the mark. Search the trade marks register before Part A, not after.
- Not maintaining the register of members from day one. It is the primary evidence of title. Reconstructing it a decade later, from filings and counterfoils, is a real piece of work.
- Assuming DPIIT recognition is the tax holiday. It is not, and the Inter-Ministerial Board application is a separate exercise with its own evidence requirements.
Questions we are asked
If you will ever raise external equity or grant ESOPs, a private limited company, and the question does not really arise. If you are certain you will not, an LLP costs materially less to run and Form 11 and Form 8 are the whole of its annual filing.
Seven to twelve working days end to end for a clean domestic case, from digital signatures to a certificate of incorporation with PAN and TAN. Add two to four weeks if a subscriber is abroad and papers have to be apostilled.
Not necessarily. GST is the one optional item in the bundle. Registration becomes compulsory once turnover crosses ₹40 lakh for goods or ₹20 lakh for services, and lower in the special category States, but there are good reasons to register earlier if you are selling business to business.
Yes, from assessment year 2025-26, and for every investor class rather than only for recognised startups. But section 68 on unexplained cash credits still applies, and the burden of proving the investor's identity, creditworthiness and the genuineness of the transaction is unchanged.
Incorporating, or already past the first deadline
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Written by MPS & Associates, Company Secretaries, on the law as it stood on 3 August 2026. It draws on the Companies Act, 2013 and the Companies (Incorporation) Rules, 2014, the MCA advisory of 12 March 2026, DPIIT Press Note No. 2 of 2026 and the FEM (Non-debt Instruments) (Amendment) Rules, 2026, and DPIIT notification G.S.R. 108(E). Statutes, rules, thresholds and due dates change, and a proposition that holds for one company may not hold for another whose facts differ. Nothing in this article is legal, secretarial or tax advice, it is not an opinion on any set of facts, and no professional relationship arises from reading it. Please see our Disclaimer.