RM Legal advises founders on the legal foundations of a new venture, from incorporation and DPIIT recognition to founders' arrangements, employee equity and preparing for investment. Getting these right early avoids disputes between founders and problems in investor due diligence later. For the incorporation process, documents and compliance, see Company and LLP Registration in Surat.
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The Department for Promotion of Industry and Internal Trade (DPIIT) recognises eligible entities as start-ups under a framework notified in February 2026. Private limited companies, LLPs, registered partnership firms and cooperative societies can apply if they are up to 10 years old, have an annual turnover of up to ₹200 crore, and are working towards innovation or the improvement of products, processes or services. Deep tech start-ups qualify for up to 20 years and up to ₹300 crore turnover. Recognition is the gateway to several benefits, including reduced patent and trademark fees, expedited patent examination, self-certification under certain labour and environmental laws, and eligibility to apply for income tax benefits.
Eligible start-ups incorporated as companies or LLPs before 1 April 2030 can claim a deduction of 100% of their profits for three consecutive years out of their first ten. This requires a separate certificate from the Inter-Ministerial Board, in addition to DPIIT recognition, and is subject to turnover and other conditions. From 1 April 2026, this deduction is governed by the Income-tax Act, 2025.
Most disputes in early-stage companies arise between founders. A founders' agreement records each founder's equity, role and commitment, how shares vest over time, what happens if a founder leaves, and how decisions are made. Vesting protects the company and the remaining founders if someone departs early.
ESOPs let start-ups attract and retain people without paying market salaries in cash. A scheme needs shareholder approval and must comply with the Companies Act, 2013 and its rules. DPIIT-recognised start-ups have additional flexibility, including the ability to grant options to promoters and directors holding more than 10% for a period after incorporation.
Investors will review the company's records before investing. Common issues that delay or reduce a round include unsigned founder or IP assignment agreements, an inaccurate cap table, missed statutory filings, and brand names that have not been registered as trademarks. We help founders identify and fix these gaps before due diligence begins.
Is DPIIT recognition mandatory?
No. It is optional, but it gives access to several government benefits, including fee concessions and the eligibility to apply for tax benefits.
Should a start-up be a private limited company or an LLP?
A private limited company is generally preferred if the founders plan to raise equity investment or issue ESOPs, since most investors invest through shares. An LLP suits businesses that will remain closely held.
Do co-founders need a founders' agreement?
It is strongly advisable. Without one, equity, roles and exits are governed only by the articles of association and general law, which rarely address what happens when a founder leaves.
Who owns the code or product developed by a freelancer?
Not necessarily the company. Unless there is a written assignment, the freelancer may retain ownership of copyright in the work. Assignment terms should be in place from the start.
Is angel tax still applicable?
No. The tax on share premium received by unlisted companies, commonly called angel tax, was abolished from the assessment year 2025-26.
When should a start-up register its trademark?
As early as possible, ideally before launch. Company or domain name registration does not give trademark rights. See Trademark Registration and Protection.
Reviewed by Richa M. Goyal, Managing Partner. Last reviewed: October 2026.