Startups

If you intend to raise equity, a private limited company, almost always. The LLP Act has no concept of shares, preference instruments or statutory employee stock options, so there is nothing for an investor’s term sheet to attach to: no liquidation preference, no conversion ratio, no ESOP pool with statutory backing. A foreign investor in an LLP is limited to capital contribution and profit share and cannot hold a convertible instrument at all. An LLP is genuinely cheaper to run and is taxed once rather than twice, which makes it a reasonable answer for a consultancy that distributes its profits. It is the wrong answer for a company that will raise.

Yes, because it costs very little and the fee rebates and public-procurement relaxations are real. Apply for it. Just do not build anything on top of it that depends on the tax holiday, which is a separate certificate. The definition changed on 4 February 2026: a startup is now within ten years of incorporation with turnover under ₹200 crore in any financial year, or within twenty years and ₹300 crore if it qualifies as a deep tech startup. Cooperative societies became eligible for the first time, though, importantly, they cannot claim the tax deduction even once recognised.

Only with an Inter-Ministerial Board certificate, which is applied for separately and granted sparingly: around 3,700 have been issued since 2016 against 2.12 lakh recognitions. If you get it, you may deduct 100% of the profits of the eligible business for any three consecutive years within your first ten. Two things to plan around. The three years must be consecutive, so a loss-making year inside your chosen block is simply wasted. And the ten-year window runs from incorporation, not from the date of your certificate, so time spent waiting for certification burns window you cannot get back. The company must have been incorporated before 1 April 2030, a date that has been extended five times and should not be assumed to move again.

Not without modelling it, and not casually: the election cannot be reversed. Electing the concessional regime forfeits the startup deduction permanently, because the deduction sits in a chapter the concessional regime switches off. So the trade is a flat 22% (about 25.17% with surcharge and cess) against the standard rate with a three-year holiday if you hold the certificate. Two things founders get wrong. The 22% surcharge is a flat 10% that applies even below ₹1 crore of income, where the standard regime carries no surcharge at all, so at low profits the two regimes are less than a percentage point apart, not the gap the headline rates suggest. And a startup that elects 22% during early loss years, when the rate is worth nothing because there are no profits, destroys the holiday for the profitable years that follow.

Not into your Indian company. A SAFE is neither an equity instrument nor a recognised debt instrument under the foreign investment rules, because it converts only on a contingency and may never convert. Money taken this way risks being recharacterised as a deposit under the Companies Act and treated as a foreign exchange contravention. The workable routes are compulsorily convertible preference shares or debentures, or a convertible note if you are DPIIT-recognised and the tranche is ₹25 lakh or more. An instrument marketed as an iSAFE is not a SAFE: it is drafted as a compulsorily convertible instrument, and that is where its validity comes from. The other answer is that the SAFE is issued by a foreign holding company, which is a decision about your structure rather than about this round.

Up to three, under three different laws, and satisfying one does not satisfy the others. The Companies Act requires a registered valuer’s report for a preferential allotment. If a non-resident is subscribing, the foreign exchange rules require a fair value certificate from a qualified professional, and the issue price must be not less than that value. Income tax has its own prescribed computation, which since angel tax was withdrawn bites in the opposite direction, on shares issued below value rather than above it. Founders who commission a single discounted cash flow report and assume it covers everything are usually wrong about at least one of the three.

At exercise, on the difference between fair market value and the exercise price, taxed as a perquisite, even though no cash has changed hands and the shares may be unsaleable. Capital gains follow separately on sale, with the holding period running from allotment rather than from grant. There is a deferral, and this is the part that goes wrong: it is available only to a startup holding the Inter-Ministerial Board certificate, not to any DPIIT-recognised startup. A company that tells its employees their ESOP tax is deferred without holding that certificate has also defaulted on its own withholding obligation, and that liability is the company’s before it is anyone else’s.

Yes. Statutory audit under the Companies Act has no turnover, capital or size threshold: every company is audited, every year, from its first. A pre-revenue company with a nil balance sheet still needs an appointed auditor, an audit report and its annual filings. This is the single biggest running-cost surprise for founders who chose a company over an LLP, where audit only begins at ₹40 lakh of turnover or ₹25 lakh of contribution. The first auditor must be appointed by the board within 30 days of registration.

Provident fund at twenty or more employees, employee state insurance at ten or more persons. Both count heads, and interns, fixed-term staff and contract workers count sooner than founders expect. DPIIT recognition gives you no exemption from either. The change that matters most is subtler: the Labour Codes now provide that where excluded allowances exceed half of total remuneration, the excess is pulled back into wages. The classic Indian startup salary structure, basic at 30 to 40% with the rest in allowances, was designed to suppress exactly this base. Under the Codes it no longer does, and both provident fund cost and the gratuity provision on your balance sheet rise. If you moved staff to fixed-term contracts, note that fixed-term employees now accrue gratuity from one year with no five-year qualifying period, which is the reverse of what those contracts were usually meant to achieve.

More than most founders expect, and on short clocks. Your company must be registered on the RBI’s FIRMS portal before it can file anything: that registration is upstream of every deadline and is routinely discovered too late. Shares must be allotted within 60 days of the money arriving, or refunded within a further 15 days. Form FC-GPR follows within 30 days of allotment. And an annual Foreign Liabilities and Assets return falls due every year thereafter while a non-resident remains on your cap table, even in a year with no activity. If you are late, the usual outcome is a Late Submission Fee: a small fixed sum plus a fraction of a percent per year of delay, capped at the amount involved. That is not the “penalties of up to three times the investment” that circulates widely, which describes the ceiling on adjudicating a substantive contravention rather than a late form.

It can, and the relief that is supposed to protect startups is stricter than it sounds. The general rule is that a closely held company loses its carried-forward business losses if beneficial shareholding changes by more than 49%. An eligible startup has an alternative: losses incurred in its first ten years survive if all the original shareholders continue to hold those shares. That protects you against dilution by new shares, but it breaks the moment any founder exits, any angel sells out at Series A, or any original holding is bought back. Most funded startups end up relying on the ordinary 51% test by Series B. If you are considering moving to a foreign holding company, take advice first: the position is unsettled, the case law conflicts, and the accumulated losses at risk are usually a much larger number than the cost of the advice.

Size has nothing to do with it. There is no monetary threshold for international transactions: a single cross-border payment to a related party triggers the full obligation. And the associated-enterprise test is mechanical: a foreign investor at 26% or more creates the relationship without holding a board seat, and so can a foreign lender whose loan exceeds 51% of your book value of assets, which a bridge-financed company with a small balance sheet crosses easily. If you have a foreign holding company, a foreign subsidiary or a founder-owned entity abroad supplying services, you are in scope from year one. Note the dates carefully: the accountant’s report is due on 31 October, one month before the 30 November return, not with it. Treating them as simultaneous is the most common way clients miss it.