Different Types of Companies in India

Eligibility

• Must have business plans for service sector activities or trading or manufacturing activities.
• In the case of an individual applicant, the age range must be between 18 and 65 years.
• Must be a non-corporate and non-farm small and micro-enterprise.

Documents Required for the PMMY Scheme

• Proof of identity
  ‍Self-attested copy of Voter's ID card/Driving Licence/PAN Card/AadhaarCard/Passport/Photo IDs issued by Govt. authority etc.
• Proof of Residence
  ‍Recent telephone bill/electricity bill/property tax receipt (not older than 2 months) / Voter's ID card / Aadhaar Card / Passport of Individual / Proprietor/Partners/Bank passbook or latest account statement duly attested by Bank officials/Domicile certificate/certificate issued by Govt. authority/Local panchayat/Municipality etc.
• Applicant's Recent Photograph (2 copies) 6 months or older.
• Proof of Identity/Address of the Business
  ‍Copies of relevant licenses/registration certificates/other documents pertaining to the ownership, identity, and address of the business unit, if any

Other relevant documents, like proof of category, quotation, etc., are also required during the application process.

Application procedure

If you are eligible, applying for a MUDRA loan is relatively easy and can be done both online & offline.

Online

• Visit the official website of the PMMY-authorized financial institution from which you wish to avail of the Mudra loan.
• Download the relevant form depending on the type of loan (Sishu, Kishore, and Tarun).
• Fill out all the personal and business details and then “Submit” the form.
• Once received, the application form is verified and processed accordingly. Following the verification, the loan amount is approved and disbursed.
• The loan amount can be withdrawn with the help of a MUDRA card issued after the loan approval.

Offline

• Visit a PMMY-authorized bank or NBFC of your choice.
• Fill out the MUDRA loan application form with the required details.
• Submit the application form with a self-written business plan and other documents to substantiate those details.
• After successful document verification, the loan will get approved, and the desired amount will be credited.
• Must have the required infrastructure and targeted acceleration programs.

Benefits of the PMMY Scheme

• MUDRA loans can be taken for small amounts at affordable interest rates; also, the credit guarantee is borne by the Government.
• This scheme could be availed without any collateral or security.
• The Mudra loan scheme in collaboration with the “Make In India” campaign, helps in fostering innovation, facilitating investment, and improving skill development.
• Women Borrowers can avail this scheme with discounted interest rates.
• Relief of up to 1500 Crore will be provided to the Borrowers as Interest Subsidy under the Mudra Shishu Category.

Achievements Under PMMY Scheme

Here’s a table to highlight the achievements under the PMMY scheme in the last 3 years.

Frequently Asked Questions

What is Equity Dilution?

Equity dilution refers to the reduction in existing shareholders’ ownership percentage due to the issuance of new shares. Although it doesn't necessarily mean a loss in actual monetary value, it does mean reduced voting power, ownership stake, and potential control over the company.

For example, if a founder owns 50% of a company before a funding round and 40% after new shares are issued to investors, the 10% drop is equity dilution.

Causes of Equity Dilution in India

Several scenarios in India lead to equity dilution:

• Fundraising through equity: When a company raises capital by issuing new shares to investors (angel, VC, PE).
• ESOPs (Employee Stock Option Plans): Issuing shares to employees for retention and motivation.
• Convertible instruments: When convertible debentures or notes convert to equity.
• Mergers and acquisitions: New shares issued as part of a transaction.
• Bonus or rights issues: Depending on the structure, these can also dilute holdings if not proportionally subscribed.

Impact of Equity Dilution

Dilution can affect stakeholders in various ways:

• Founders: Loss of control or voting power if too much equity is given away early.
• Investors: Reduced ownership percentages, which may affect decision-making influence.
• Employees: If ESOPs are diluted too often, their potential upside gets reduced.
• Company valuation: Though dilution reduces percentage ownership, it can lead to growth and higher valuations, offsetting the effect in monetary terms.

How Does Share Dilution Happen?

Share dilution occurs when a company issues additional shares, reducing the ownership percentage of existing shareholders. While the total number of shares increases, each existing shareholder’s slice of the pie becomes smaller — unless they participate in the new issue.

Here are the most common ways share dilution happens in India:

1. Fundraising (Equity Rounds)

During seed, Series A, or later funding rounds, new investors are issued fresh equity. To accommodate them, the company increases its authorised and paid-up share capital, diluting the percentage held by existing shareholders.

Example:
A founder owns 100% of a startup with 1,00,000 shares. After raising funds from investors who are issuing 50,000 new shares, the founder’s ownership drops to 66.67%.

2. Issuing ESOPs (Employee Stock Option Plans)

Startups often set aside 5–15% of their cap table for ESOPs to attract and retain top talent. These options, once vested and exercised, convert into shares — reducing the percentage stake of other shareholders.

3. Conversion of Convertible Instruments

Instruments like convertible notes, SAFE (Simple Agreement for Future Equity), or CCDs (Compulsorily Convertible Debentures) convert into equity at a future date. When they convert, new shares are issued, which dilute existing ownership.

4. Mergers or Acquisitions

In some mergers or acquisitions, equity may be offered as part of the consideration to the merging entity or its shareholders. This leads to the issuance of new shares and causes dilution.

5. Bonus Shares to Select Stakeholders

Occasionally, a company might issue bonus shares to certain shareholders or employees as incentives, which can result in uneven dilution.

Reasons for Equity Dilution

• Capital infusion: To fund growth, R&D, hiring, marketing, etc.
• Strategic partnerships: Issuing equity to partners or advisors.
• Debt conversion: Debt turning into equity through convertible notes.
• Regulatory compliance: SEBI regulations may require public companies to maintain a certain free float, triggering new issuance.

Managing Equity Dilution in India

Equity dilution is inevitable as your startup grows — but managing it smartly can protect both your control and long-term value. Indian founders must understand the tools, strategies, and legal frameworks available to reduce unnecessary dilution and align all stakeholders.

1. Plan Your Cap Table Early

Create a 5–7 year cap table projection. Visualise future funding rounds, ESOP pools, convertible instruments, and expected dilution at each stage.

2. Raise What You Need, Not What You Can

Avoid over-raising in early rounds. Each round of funding comes at the cost of equity. Only raise what’s required to hit the next set of milestones.

3. Negotiate Better Valuations

Valuation is key to how much equity you give up. Strengthen your fundamentals, traction, and pitch to negotiate higher valuations, thus minimising dilution per rupee raised.

4. Use Convertible Instruments Strategically

Instruments like SAFE notes or CCDs can delay dilution until a priced round. Use them in early or bridge rounds to preserve equity while bringing in capital.

5. Be Thoughtful with ESOP Allocation

ESOPs are critical to building a strong team, but don’t over-allocate too early. Start with a lean pool (5–10%) and expand as your team grows and funding allows.

6. Include Anti-Dilution Provisions (If You're an Investor or Co-Founder)

While often investor-friendly, certain anti-dilution clauses can protect your equity in down rounds. Founders should understand these clauses and negotiate fair terms.

7. Consider Non-Dilutive Capital

Explore grants, government schemes (like Startup India Seed Fund, MeitY TIDE, or NIDHI), or revenue-based financing. These options offer capital with no equity dilution.

8. Maintain Founder Alignment

If co-founders have significantly unequal stakes, align expectations early. Future dilution can compound tensions if not addressed at the start.

How Shareholders Can Handle Equity Dilution?

• Pre-emptive rights: Ensure agreements include rights to participate in future rounds to maintain shareholding.
• Anti-dilution clauses: Particularly for investors, these can protect them from value dilution in down rounds.
• Monitor ESOP pools: Oversized ESOP pools dilute all shareholders.
• Regular cap table reviews: Stay updated to avoid surprises in ownership shifts.

Conclusion

Equity dilution is a natural part of a growing business, especially in India's thriving startup and investment landscape. While it may seem negative on the surface, it often enables access to capital, talent, and partnerships that fuel long-term value creation. 

The key lies in understanding, planning, and strategically managing dilution to protect stakeholder interests while supporting the company’s growth.

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Procedure to Start an Online Business

Step 1: Identify Your Business Idea

How do I choose the right online business idea?

Choosing the right online business idea starts with understanding your own strengths. Think about your skills, hobbies, and what you’re passionate about. Also, assess market demand to ensure that your idea addresses a genuine need. You can brainstorm by asking yourself what problems you can solve or how your expertise can benefit others.

What are the most profitable online business ideas?

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Some of the most profitable online business ideas include e-commerce, dropshipping, freelancing, selling digital products, and affiliate marketing. These options require relatively low investment and have high growth potential in India. E-commerce and dropshipping are ideal for those interested in retail, while freelancing and digital products are great for service-oriented entrepreneurs.

How do I validate my business idea?

To validate your business idea, you should conduct market research and competitor analysis. This helps you understand if there’s demand for your product or service and how to position yourself in the market. Additionally, you can run surveys or test your idea on a small scale to gather feedback before fully committing to it.

Step 2: Conduct Market Research

Why is market research important for an online business?

Market research is crucial for understanding your target audience and the competition. It helps you identify customer needs, preferences, and pain points, allowing you to tailor your offerings effectively. By knowing what your competitors are doing, you can find gaps in the market and differentiate your business. This research forms the foundation for making informed decisions and reducing risks.

How do I conduct market research?

To conduct market research, start by using tools like Google Trends and keyword research tools (e.g., SEMrush, Ubersuggest) to identify trending topics and search volumes. You can also use social media insights to monitor conversations around your niche. Engaging directly with potential customers through surveys or focus groups will also give you valuable feedback.

What are the key metrics to analyse?

Key metrics to analyse include customer demographics, such as age, gender, location, and income level. Understanding buying behaviour, including purchase frequency and preferences, is equally important. Additionally, assessing the market size, competition, and growth potential helps you gauge the sustainability of your business idea.

Step 3: Create a Business Plan

Do I need a business plan for an online business?

Yes, a business plan is essential for an online business. It provides clarity on your goals and how you plan to achieve them. A solid business plan also plays a key role when seeking funding, as it helps potential investors or lenders understand the vision, strategy, and financial viability of your business.

What should a business plan include?

Your business plan should include the following sections:

1. Executive Summary: A brief overview of your business, mission, and vision.
2. Target Market: A detailed description of your ideal customers and their needs.
3. Revenue Model: A breakdown of how you’ll make money (e.g., product sales, subscriptions, services).
4. Marketing Strategy: A plan for how you'll promote your business, including online advertising, social media, and SEO.
   

How do I set realistic goals?

To set realistic goals, follow the SMART criteria:

1. Specific: Define clear, concise goals.
2. Measurable: Ensure your progress can be tracked.
3. Achievable: Set goals that are realistic given your resources.
4. Relevant: Ensure the goals align with your business objectives.
5. Time-bound: Assign deadlines to keep you on track. Setting SMART goals helps maintain focus and ensures steady progress.

Step 4: Choose a Business Model

What are the different online business models?

1. E-commerce: Selling physical or digital products through an online store.
2. Subscription-based: Offering products or services on a recurring basis, such as monthly subscriptions for digital content or curated boxes.
3. Service-based: Providing services like consulting, coaching, or freelance work directly to customers.
4. Ad-based: Earning revenue through advertising, typically via websites or social media platforms that attract large audiences.

Which business model is best for beginners?

For beginners, a service-based model or a subscription-based model might be the best fit. The service model often requires lower initial investment and offers flexibility in terms of workload. The subscription model provides recurring revenue, which can be predictable once you have a customer base. However, each model has its pros and cons:

1. E-commerce: High investment, but potential for significant profit.
2. Subscription-based: Steady income but may require strong marketing efforts.
3. Service-based: Low cost to start, but time-intensive and dependent on personal expertise.
4. Ad-based: Relatively low start-up cost, but requires a large audience and can take time to generate income.

How do I decide which model suits me?

To decide on the best business model, align your choice with your skills, budget, and long-term goals. If you have a skill set that can be marketed as a service (e.g., writing, design, tutoring), a service-based model might be a good start. If you want to sell products but have a limited budget, dropshipping or print-on-demand models may be better. Consider your available resources and the time you can commit before making your final decision.

Step 5: Register Your Business

Do I need to register my online business?

Yes, registering your online business is crucial for legal and tax purposes. It provides your business with a legal identity, ensures compliance with local regulations, and helps build credibility with customers. Without registration, you might face legal issues and be unable to access benefits like business loans or grants.

H4 - What are the steps to register a business?

1. Choose a business name: Make sure it reflects your brand and is unique.
2. Decide on a legal structure: Select the appropriate business structure (sole proprietorship, LLC, Private Limited, etc.).
3. Register for taxes: Apply for a Goods and Services Tax (GST) number if applicable.
4. Obtain required licenses: Depending on your business type, you may need specific licenses or permits.
5. Open a business bank account: This helps separate personal and business finances.
6. Get a business PAN (Permanent Account Number): Required for tax filings and business transactions.

What legal structure should I choose?

Choosing the right legal structure depends on factors like liability, taxes, and scalability:

1. Sole Proprietorship: Simple to set up, ideal for solo entrepreneurs, but you’ll be personally liable for business debts.
2. Limited Liability Partnership (LLP): Offers limited liability protection and is suitable for small businesses with partners.
3. Private Limited Company: A more complex structure that provides limited liability and is better suited for larger businesses looking for investment or expansion. It also offers tax benefits and more credibility.

Related Read: Difference between Private Limited Company and One Person Company

Step 6: Build Your Online Presence

How do I create a website for my business?

1. Choose a domain name: Pick a name that reflects your business and is easy to remember. Check for availability using domain registrars like GoDaddy or Hostinger.
2. Select a hosting provider: Choose a reliable hosting service, such as Bluehost or SiteGround, to ensure your website runs smoothly.
3. Use website builders: Website builders like WordPress and Shopify are user-friendly and offer templates for quick setup. WordPress is ideal for blogs and content-focused websites, while Shopify is perfect for e-commerce stores.

Do I need social media for my online business?

Yes, social media is crucial for marketing and customer engagement. Platforms like Facebook, Instagram, and LinkedIn help you reach a wider audience and build brand awareness. Social media allows you to connect with customers, share updates, promote products, and gather feedback. It’s an affordable way to drive traffic to your website and create a loyal community around your brand.

What are the essential features of a business website?

1. User-friendly design: A clean, easy-to-navigate layout that enhances the user experience.
2. Secure payment gateways: Integrated payment gateway (e.g. Razorpay) to facilitate safe and smooth transactions.
3. Mobile responsiveness: Your website should be fully optimised for mobile devices, as many users shop and browse on their phones.

Step 7: Set Up Payment and Shipping Systems

H4 - How do I accept payments online?
To accept payments online, you need to integrate a reliable payment gateway into your website. Payment gateways like PayPal, Stripe, and Razorpay allow you to process credit card payments, debit cards, and digital wallets securely. The setup process usually involves creating an account with the provider, linking it to your business bank account, and adding their payment gateway to your website using plugins or APIs. 

What are the best shipping options for an online store?

1. Self-shipping: If you’re a small business, you can handle shipping yourself by partnering with courier services like India Post, DTDC, or Blue Dart. This gives you more control but requires time and resources.
2. Third-party logistics (3PL): 3PL companies manage storage, packaging, and delivery on your behalf. This is ideal for businesses that want to scale quickly without handling logistics.
3. Dropshipping: This model eliminates the need for inventory management. When a customer places an order, the product is directly shipped from the supplier. It’s cost-effective, but you have less control over shipping times and quality.

How do I handle international payments and shipping?

1. Payments: Use global payment gateways like PayPal or Razorpay, which support multiple currencies. You’ll need to set up your account to handle cross-border payments and be aware of transaction fees and exchange rates.

• Shipping: Partner with international couriers like DHL or FedEx for global shipping. Ensure that you account for customs duties, taxes, and potential delays. Consider using platforms like Shiprocket or Easyship, which can automate international logistics and offer competitive shipping rates.

Step 8: Market Your Online Business

How do I promote my online business?

1. SEO (Search Engine Optimisation): Optimise your website for relevant keywords, improve loading speeds, and focus on creating quality content to rank higher in search engines.
2. Social Media Marketing: Use platforms like Instagram, Facebook, and LinkedIn to engage with your audience, share valuable content, and promote offers.
3. Email Marketing: Build an email list and send newsletters, promotional offers, or product updates to keep customers engaged.
4. Paid Ads: Run ads on Google, Facebook, or Instagram to increase brand visibility and attract potential customers. Paid advertising can generate quick results if targeted effectively.

What is the best way to attract customers?

1. Content Marketing: Create blog posts, videos, or infographics that provide value to your audience and establish your brand as an authority in your niche.
2. Influencer Collaborations: Partner with influencers in your industry to promote your products or services, leveraging their established trust and following.
3. Customer Reviews: Encourage satisfied customers to leave reviews and testimonials. Positive feedback can build credibility and influence potential customers' purchasing decisions.

How do I track the success of my marketing efforts?

To track the success of your marketing efforts, use tools like:

1. Google Analytics: Monitor website traffic, user behaviour, and conversion rates. Google Analytics gives you detailed insights into your website’s performance.
2. Social Media Insights: Platforms like Facebook, Instagram, and Twitter provide analytics on engagement, reach, and audience demographics, helping you assess the effectiveness of your social media campaigns. These tools can help you fine-tune your marketing strategies and ensure that your efforts are yielding the desired results.

Step 9: Manage Operations and Scale

How do I manage day-to-day operations?
To manage day-to-day operations effectively, use tools that streamline tasks:

1. Inventory Management: Tools like TradeGecko or Zoho Inventory help track stock levels, manage orders, and avoid overselling.
2. Customer Support: Platforms like Zendesk or Freshdesk assist in managing customer inquiries, complaints, and service requests efficiently.
3. Order Tracking: Use tools like Shiprocket or AfterShip to monitor and update customers on the status of their orders in real-time, improving their experience.

When should I consider scaling my business?

1. Consistent Revenue Growth: When your sales show a steady increase over a few months or years, it indicates that your business model is working.
2. High Customer Demand: If customers are requesting more products or services than you can provide, or if you’re struggling to meet demand, it’s a clear sign that you’re ready to expand.
3. Positive Cash Flow: If you have a healthy profit margin and can reinvest earnings back into the business, scaling becomes a feasible option.

• What are the best ways to scale an online business?

1. Expand Product Lines: Add complementary products or services to cater to a broader audience or meet existing customer needs.
2. Enter New Markets: Consider selling to customers in different regions, cities, or even internationally to broaden your reach.
3. Automate Processes: Use automation tools for marketing (e.g., Mailchimp for emails), customer support (e.g., chatbots), and order fulfilment to reduce the workload and enhance efficiency. By scaling smartly, you can increase your reach and profitability without compromising the quality of your offerings.

Registration of Online Business in India

• Choose a suitable business structure: Decide whether to register as a Sole Proprietorship, LLP, or Private Limited Company based on your business model, scalability needs, and compliance requirements.
• Select a unique business name: Check name availability on the Ministry of Corporate Affairs (MCA) portal and register it to avoid legal issues.
• Apply for PAN and TAN: A Permanent Account Number (PAN) is required for financial transactions. At the same time, a Tax Deduction and Collection Account Number (TAN) is mandatory if your business deducts taxes at the source.
• Register for GST: If your annual turnover exceeds ₹40 lakhs (₹20 lakhs for special category states), you must register for Goods and Services Tax (GST) to collect and pay taxes legally.
• Register under MSME if applicable: If you own a small or medium-sized business, registering under the Udyam (MSME) scheme can provide benefits like easier loan approvals and government subsidies.
• Obtain necessary licenses and permits: Depending on your industry, you may need specific licenses, such as an FSSAI license for food businesses, a trade license for local operations, or an Import Export Code (IEC) for international trade.
• Open a business bank account: A separate bank account in your business name is required for handling payments, tax filings, and financial transactions professionally.

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Tips to Start an Online Business in India

• Identify a Profitable Niche
  
  Selecting the right niche is important for success. Focus on a business idea that matches your skills and interests while also having strong market demand. Research your competitors to find opportunities where you can stand out.
• Build a Strong Online Presence
  Creating a website or an e-commerce store is essential for any online business. Make sure your website is easy to use, mobile-friendly, and optimised for search engines. Use social media to connect with your audience and promote your products or services.

• Ensure Legal Compliance
  Every online business must comply with the legal requirements for online business in India to operate lawfully. You need to register your business and get GST registration in India. It is also important to comply with tax and other regulations. Completing these formalities ensures smooth operations and avoids legal issues. 

• Set Up Secure Payment Systems
  
  Providing a secure and convenient payment method builds customer trust. Choose a reliable payment gateway that supports multiple payment options and ensures smooth transactions for your customers.

Frequently Asked Questions