How to Open a Software Firm in India

Narendra Kumar

07 Jun, 2019

There are two possibilities of starting a software firm – the first one is to open up a software consultancy firm and the other is to open a software development firm – you develop software and then sell it.

As a startup company, the owners or the directors can take a loan from banks or have a venture capitalist invest in the firm. The industry is bound to keep growing as more and more businesses adopt information technology to digitize their operations, sales, and revenues.

What are the Software Firm and IT related Statistic in India?

As per records available the IT-BPM industry contributed about 5.8 % to the country’s GDP in 2008-09 and 7.7% in 2016-17. The Indian IT industry earned USD 152.6 billion in the last financial year of which 76% was from exports USA being the largest contributor to export revenues. The export revenues from software products and R&D services were worth USD 25 billion in FY 2017.

The industry is overall expected to grow at a rate of 7 to 9 percent in this financial year with a target of achieving USD 350 billion in revenue from the sector by 2025.

Though this sector has competition from global players as well as locally established companies, software companies are consistently in demand because of dependency on automated and technology-driven systems of all types of industries. Startups and smaller players are also in demand of low-cost factor.

What the Mandatory Registrations and Licenses that needs to be Procured by a Start-up Software Company in India?

Opening either type of software firm in India is associated with procuring the following licenses and registrations on a mandatory basis.

1. Decide the legal entity and get the documentation done accordingly. Choose from a Sole Proprietorship Firm, One Person company, Partnership firm, LLP or Private Limited Company. For the sole proprietorship firm, only the proprietor’s details like his PAN card, Aadhaar card, address proof, business address proof and a current bank account is enough to start. For the partnership firm, a Partnership Deed is required to be prepared to outline the business and working modalities of the firm.

For the other three types of companies.e OPC, Private Limited Company and LLP, the next step is to:

1. Apply for the Director’s Digital Signature Certificate and the Director Identification Number.
2. File for the name reservation with the Ministry of Corporate Affairs and get the name approved.
3. Fill in the requisite form and upload required documents on mca.gov.in for obtaining the Certificate of Incorporation from the Registrar of Companies.
4. GST registration at https://reg.gst.gov.in/registration/ for GSTIN number. The online form needs to be filled and relevant documents uploaded to get the registration done.
5. MSME Udyog Aadhaar registration –though optional this is registration enables the startup business to enjoy certain Central and State government benefits that are reserved only for Micro, Small and Medium Enterprises. This registration can also be initiated online from https://udyogaadhaar.gov.in/UA/UAM_Registration.aspx. The Ministry of MSME defines the different slabs for the service industry to register either as a micro, small or medium unit.
6. STPI (Software Technology Parks of India) or STP (Software Technology Parks) license is required for setting up a 100% Export oriented unit (EOU). Documents required for this license are:- filled up prescribed form, MoU and AoA, Board Resolution for setting up STP unit, resume of CEO, detailed business plan, company profile, promoter background, areas of service, marketing plan, manpower plan, future plans, parent company details, list of capital goods to be procured, floor plan of the unit, rent agreement, invoice of internet service provider and applicable financial statements.
7. Application for setting up a unit in SEZ (Special Economic Zone) – the owner needs to register himself first and then apply online and follow the process to get the Letter of Approval as per rules laid down by the Ministry of Commerce and Industry.
8. Copyright Registration on the source codes of the software firm developed by the firm under Copyright Act, 1957 – this is a one-time exercise but needs professional help.
9. Patent registration for the software – check under section 3(K) of the Indian Patents Act, 1970 for getting this registration.
10. Software License for proprietary software, free software firm and open source software.
11. File for trademark registration as it helps in brand building for the organization.