Quick answer
- Pick the right entity early. A private limited company suits most funded startups. An LLP suits bootstrapped service businesses.
- Sign a founders’ agreement with equity split, vesting, roles, IP ownership and exit terms before you raise money.
- Make sure all code, designs and brand assets are assigned to the company, and file your trademark.
- Get DPIIT recognition for startup benefits. Put an ESOP plan, customer and vendor contracts, and a data-privacy policy in place under the DPDP Act, 2023.
Most startup disputes we see come from things founders skipped in the first year: an unwritten equity split, code owned by a freelancer, or a co-founder leaving with a large stake. Here is a practical checklist.
1. Which business entity should you choose?
- Private limited company: best for raising equity, issuing ESOPs and building investor confidence
- LLP: lower compliance and flexible, but it cannot issue equity to investors in the usual way
- One Person Company: for solo founders, with limits on growth
Incorporation is done online through the MCA’s SPICe+ form.
2. What should a founders’ agreement cover?
Equity split, roles and time commitment, decision-making, vesting (commonly 4 years with a 1-year cliff), what happens when a founder leaves (good leaver and bad leaver), non-compete during engagement, confidentiality and dispute resolution.
3. Who owns your intellectual property?
Copyright in work made by a freelancer or agency belongs to them unless it is assigned in writing (Copyright Act, 1957, Sections 18 and 19). Get written IP assignment from founders, employees and contractors. File your trademark early. It’s cheap and protects your brand name.
4. How do you get DPIIT recognition and what does it offer?
Recognition as a startup by DPIIT (through Startup India) is available for eligible entities up to 10 years old with turnover of up to ₹200 crore in any year (deep-tech startups: up to 20 years and ₹300 crore), under DPIIT’s revised notification G.S.R. 108(E) of 2026. Benefits include self-certification under certain labour and environment laws, faster patent examination with fee rebates, and eligibility for the startup tax holiday (Section 140 of the Income-tax Act, 2025, which replaced Section 80-IAC from 1 April 2026; turnover limit ₹100 crore), subject to separate approval by the Inter-Ministerial Board.
5. How should you set up ESOPs?
ESOPs need a shareholder-approved plan under Section 62(1)(b) of the Companies Act, 2013 and Rule 12 of the Share Capital and Debentures Rules. DPIIT-recognised startups get some relaxations, including granting ESOPs to promoters for up to 10 years from incorporation.
6. Which contracts do you need from day one?
- Employment letters with confidentiality and IP clauses
- Customer terms of service, SaaS or service agreements
- NDAs for investor and partner talks
- Vendor and reseller agreements with clear payment and liability terms
7. How do data privacy rules affect you?
If you collect personal data, you need a clear privacy notice, a lawful basis (usually consent), security safeguards and a grievance process under the Digital Personal Data Protection Act, 2023 and the DPDP Rules, 2025 (notified in November 2025), which are being phased in over 18 months.
8. What are the tax and registration basics?
PAN and TAN, GST registration once you cross the threshold or sell inter-state, Shops and Establishments registration, and Professional Tax where applicable.
9. What documents will investors check?
A clean cap table, board and shareholder resolutions, valuation reports for share issues, FEMA filings for foreign investment, and a term sheet reviewed by counsel before you sign.
10. What yearly compliance is needed?
Board meetings, an AGM, statutory audit, annual ROC filings (AOC-4 and MGT-7/7A), income tax returns and director KYC. Missed filings attract daily penalties.
Need help?
We advise founders on incorporation, founders’ agreements, fundraising documents and contracts. See startup and corporate lawyer in Noida and commercial law.
Frequently asked questions
Is a private limited company better than an LLP for a startup?
If you plan to raise equity from angel or VC investors or issue ESOPs, a private limited company is usually better. An LLP suits bootstrapped service businesses that want lower compliance.
When should founders sign a founders’ agreement?
As early as possible, ideally at incorporation and before any outside investment, while the founders still agree on equity and roles.
Is DPIIT recognition compulsory?
No. It is optional, but it unlocks benefits such as self-certification under some labour and environment laws, IPR fee rebates and eligibility for the startup tax holiday.
Do I need a privacy policy for my app or website?
Yes, if you collect personal data. The DPDP Act, 2023 and the DPDP Rules, 2025 require a clear notice, consent where needed, security safeguards and a grievance contact.
Sources
- Companies Act, 2013 — Section 62(1)(b); Companies (Share Capital and Debentures) Rules, 2014 — Rule 12
- Copyright Act, 1957 — Sections 17 to 19; Trade Marks Act, 1999
- Digital Personal Data Protection Act, 2023
- Startup India — DPIIT recognition
- Income-tax Act, 2025 — Section 140 (formerly Section 80-IAC of the Income-tax Act, 1961)
- DPIIT notification G.S.R. 108(E), 2026 (revised definition of startup)
- Digital Personal Data Protection Rules, 2025
This article is general legal information, not legal advice for your specific case. Law and procedure change; please consult an advocate before acting.
