पाठशाला Pathshala · नियम Niyam, Law and compliance · Lesson 01 · Start

Incorporating in India: private limited, LLP or OPC, and what DPIIT recognition gets you

The entity you register in week one decides who can invest in year three. The choice is simpler than the forms suggest, and the forms are simpler than they were.

Pathshala, The Founder Library · 10 October 2026 · 9 min read

Founders spend weeks on the name and ten minutes on the entity, and the entity is the decision that lasts. It fixes who can own a share of the company, how profit is taxed on the way out, how much paperwork arrives each year, and whether an investor can write a cheque at all. The good news is that the choice has become easier and the filing has collapsed into one form.

This lesson does three things. It settles the entity question with the test investors actually apply. It walks the MCA route from a reserved name to a certificate of incorporation, with the registrations that now come bundled. And it lists the compliances that bite in the first six months, because the companies that get into trouble with the Registrar are rarely the ones doing anything wrong; they are the ones that did not know a clock was running.

India gives a founder three sensible shapes. A private limited company is owned through shares, run by a board, and governed by the Companies Act 2013. A limited liability partnership is owned through partners’ capital contributions and a profit-sharing ratio, governed by the LLP Act 2008. A one person company is a private limited company with a single member, built for a solo founder who wants limited liability without a partner.

The question that decides between them is not tax or compliance, though both matter. It is this: will anyone other than the founders ever own a piece of this business in exchange for money? If the answer is yes, or even possibly, the entity is a private limited company and the rest of the choice disappears. If the answer is a firm no, the LLP usually wins on cost and tax, and the OPC is the right shape for a founder who is genuinely alone.

The private limited company: what the law requires

A private company needs at least two directors and at least two shareholders, and the same two people can be both. Section 149 of the Companies Act requires at least one director who has stayed in India for at least 182 days in the financial year; the other may live anywhere. There is no minimum paid-up capital, and the Ministry of Corporate Affairs charges no filing fee for incorporation with authorised capital up to ₹15 lakh, though state stamp duty still applies.

The cost of the shape is annual compliance that does not scale down for a small company: audited accounts every year regardless of turnover, an annual general meeting, at least four board meetings, and the annual filings to the Registrar. For a two-person company with no revenue this is a few lakh rupees a year in professional fees and a recurring tax on attention. It is also the price of being investable, and it is paid by every company an investor has ever backed.

When an LLP beats a private limited company, and who the OPC is for

An LLP needs at least two partners and at least two designated partners who are individuals, one of whom has stayed in India for at least 120 days in the financial year. Its advantages are real. An audit is required only once turnover crosses ₹40 lakh or partners’ contribution crosses ₹25 lakh. There is no mandatory board or general meeting. And profit is taxed once, at the LLP, with each partner’s share exempt in their own hands; a company pays corporate tax and then its shareholders pay tax again on dividends.

So for a consulting practice, an agency, a clinic, a firm of two professionals who intend to draw the profits and never sell equity, the LLP is often the better instrument. It is cheaper to run, it is taxed once, and nobody has to pretend to hold a board meeting. The test is whether the business will be funded entirely by its customers, and whether the owners would rather have the profits now than a share of a sale later.

The OPC is the third shape. An OPC has one member and at least one director, and the member must name a nominee who takes over if the member dies or becomes incapable. Since April 2021 the rules have loosened: the member needs 120 days of residence in India rather than 182, an Indian citizen living abroad can form one, and the old requirement to convert into a private company once paid-up capital or turnover crossed a threshold has gone. An OPC can convert into an ordinary private company whenever its owner chooses, which is exactly what happens the day a co-founder or investor arrives.

That makes the OPC a sensible starting point for a solo founder who wants limited liability and a company name on the invoice, and who is not yet raising. The moment a second owner appears the shape changes, and conversion is a filing rather than a crisis.

Why venture money only goes into a private limited company

Investors do not prefer the private limited company out of habit. The instruments they use do not exist anywhere else. An LLP has no share capital, so it cannot issue shares, cannot issue the compulsorily convertible preference shares that institutional rounds in India are built on, and cannot grant stock options to employees. A new investor in an LLP can only become a partner, with the profit-sharing and liability questions that follow. Foreign money is harder again: FDI into an LLP is permitted only in sectors where 100 per cent foreign investment is allowed on the automatic route with no performance conditions, and LLPs cannot raise external commercial borrowings.

Nobody has ever been turned down for being a private limited company. People are turned down every week for not being one.

Founders who begin as an LLP to save on compliance and then find a lead investor spend two or three months and a meaningful sum converting, during which the investor’s enthusiasm is tested and the valuation sometimes moves. If there is any chance of outside equity the saving is false. Incorporate the company, carry the compliance, and treat it as the first term of a deal you have not yet signed.

The route through MCA: one form, ten services

Incorporation now runs through a single web form on the MCA portal called SPICe+. Part A reserves the name; an approved name is held for 20 days, within which Part B must be filed. Part B is the incorporation itself: the electronic memorandum and articles of association, the directors’ details, and Director Identification Numbers allotted for up to three directors inside the form. A linked form, AGILE-PRO-S, applies at the same time for GST registration, EPFO and ESIC registration, profession tax where the state levies it, and a bank account. The Certificate of Incorporation arrives with PAN and TAN printed on it. What used to be eight visits to six offices is one filing, and a clean application is often back within a week.

An LLP follows a parallel path: a name through RUN-LLP, incorporation through the FiLLiP form, and the LLP agreement filed within 30 days. Draft that agreement before you incorporate. It is the whole constitution of the firm, and the default rules that apply when there is no agreement are not ones any founder would choose.

The first 180 days: three clocks that start at incorporation

Thirty days: the first board meeting and the first auditor. Section 173(1) requires the first board meeting within 30 days of incorporation; section 139(6) requires the board to appoint the first statutory auditor within the same 30 days, failing which the members must do it within 90 days at a general meeting. Hold one meeting and do both. Minute the registered office, the bank account and the allotment of shares to the subscribers while you are at it.

One hundred and eighty days: the declaration of commencement of business. Every company with share capital must file INC-20A within 180 days of incorporation, confirming that each subscriber has paid for their shares. Until it is filed the company cannot begin business or borrow. The penalty is ₹50,000 on the company and ₹1,000 a day on every director up to ₹1 lakh, and a company that has not filed can be struck off the register. The subscription money must actually have reached the bank, which is why the account comes first.

Two months from allotment: share certificates. Section 56(4) requires them within two months. Nobody checks for three years, and then a lawyer doing due diligence on your first round asks for them. Issue them, stamp them, and file them in the folder you will open again at the term sheet.

Two registrations sit outside the Companies Act and are worth doing early. GST registration is compulsory once aggregate turnover crosses ₹20 lakh for services or ₹40 lakh for goods in most states, and from the first rupee for anyone supplying goods across state lines; most startups selling to companies register at once because customers want the input credit. Udyam registration as an MSME is free, takes ten minutes with an Aadhaar number, and puts the MSMED Act’s 45-day payment rule and section 43B(h) of the Income-tax Act behind every invoice you raise to a larger customer.

What DPIIT recognition gets you

Recognition by the Department for Promotion of Industry and Internal Trade is a certificate, not a licence. You apply on the Startup India portal with the incorporation certificate and a short description of what the company does. The criteria, revised by notification in February 2026: a private limited company, LLP or partnership firm, up to ten years from incorporation, turnover not exceeding ₹200 crore in any financial year since incorporation, working towards innovation or improvement of products, services or processes, and not formed by splitting up or reconstructing an existing business. Deep-tech companies get twenty years and ₹300 crore. The turnover ceiling was ₹100 crore until the 2026 notification doubled it.

What the certificate opens. First, the tax holiday under section 80-IAC of the Income-tax Act: a full deduction of profits for any three consecutive years the company chooses out of its first ten, available to recognised startups incorporated before 1 April 2030 whose turnover does not exceed ₹100 crore in the year claimed, on approval by an Inter-Ministerial Board. Note the two different ceilings: ₹200 crore to be recognised, ₹100 crore to claim the deduction. Second, eligibility for the Startup India Seed Fund Scheme, which routes grants of up to ₹20 lakh and convertible or debt funding of up to ₹50 lakh through incubators to recognised companies under two years old. Third, a set of smaller conveniences: rebates on patent and trademark filing fees, self-certification under several labour and environment laws, relaxed norms in government procurement, and a faster winding-up route if it comes to that.

What the certificate no longer needs to do is protect you from the angel tax. For a decade section 56(2)(viib) treated money raised above a tax officer’s view of fair value as income, and DPIIT recognition was the main shield. The July 2024 Budget abolished the provision for all classes of investor. Recognition is now about the tax holiday, the seed fund and the procurement rules, which is reason enough to apply in the first month.

The founders’ first-quarter ritual

In the week the certificate arrives, open the checklist above and tick what is done. Put three dates in the shared calendar: day 30 for the board meeting and auditor, day 60 after allotment for share certificates, day 180 for INC-20A. Apply for DPIIT recognition in the same week while the incorporation documents are already in hand. Then, on the first working day of each quarter, open the list again and ask one question: is there a filing due before the next time we look? A company that answers that question twelve times is a company that walks into its first due diligence with nothing to explain.

None of this is legal or tax advice. Thresholds, fees and forms change, often in a Budget or a Gazette notification, and the portals above are the record. A company secretary who has filed a hundred SPICe+ applications costs less than one missed INC-20A.