How to Start a Software Company

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The information technology and software industry of India has been a major contributor to the country’s progressive economic performance in the last couple of years. Top international organizations now are also keen to cash in on the lower expenses and the well trained workforce.

Legal procedures involved in starting a software company

To start with, a start-up software company should focus on the pre-registration process for registering companies in India. They should also procure the following from relevant government offices:
  • Direct Identification Numbers
  • Reservation of company name
  • Electronic signatures
While applying for incorporation a software company needs to first identify its directors. The number of directors should not be lesser than 2 and more than 8. In case the directors do not possess Directors Identification Numbers (DIN) they should apply for the same at the official website of the Union Ministry of Corporate Affairs.

Any one of the following documents can be submitted as an identity proof while applying for a DIN:
  • PAN Card
  • Passport
  • Driving License
  • Voters ID Card
The applicants can also furnish any one of the below mentioned documents as residence proof while making this application:
  • Driving license
  • Ration card
  • Passport
  • Electricity bill
  • Voter ID card
  • Bank statement
  • Telephone bill
These processes are normally completed in lieu of fees. After the process of getting a DIN is complete the company has to make an application for securing a name for the company. There are 5-6 possible names from which a company can choose. The additional names come in handy when the most preferred name is not available.

The application for procuring a name has to be done online. The prospective owners need to visit the official website of the government and then download the Form 1A and fill it up.

This is followed by the application for incorporation. While applying for this purpose the owners need to come up with a Memorandum of Association that will have the names of the company’s first directors and its operation. This application and the Form 1A should be submitted online at the official website of the concerned governmental department. Once the approval for incorporation comes the owners should print a minimum of 10-15 copies of the same and keep them as booklets.

Otherwise, once the name registration is completed, the owners can authenticate every document from a bank and then take them to the Registrar of Companies. The Registrar will undertake the process of formal incorporation of the concerned company. The owners should also procure a tax account number from the regional Income Tax Department. Registration can also be done through chartered accountants.

After the company has been formally incorporated, the owners should open a current account at a well known bank for carrying out their operations. In order to open the bank account, the owners will have to furnish copies of their Memorandum of Association and Certificate of Incorporation.

Steps involved in opening a new software company

Creating a business plans

The entrepreneurs need to come up with two versions of a business plan – a detailed one and a customized one. The detailed plan will be used by the owners and the shorter version will be used to generate capital. The business plan needs to be flexible as most of the times things do not go according to it.

Determining the type of business

The owners of a software company need to consider several factors before they start operations:
  • Type of products and services on offer
  • Profitability and feasibility
  • Target market
Ideally the software entrepreneurs need to consider the following options before they make a choice:
  • They should target a niche market as the competition in the established and saturated ones is pretty fierce
  • They are required to focus on using new channels for distribution that provide solutions in a more effective manner
  • They are supposed to provide new, better and economical solutions – otherwise customers may not be interested in buying the products

Products

The owners need to come up with a beta version of their product. Once a full fledged product is developed it should be protected through copyrights, patents, and trademarks.

They should also use the web space to promote their product. They can start by creating a website and then providing an online demo of their software. Social media platforms such as Facebook and Twitter should also be used for purposes of promotion, providing information on new offers, and gaining feedback.

Finances

Avenues such as angel investors, venture capital funds and events like proto.in can be explored for securing the start-up capital.

Obtaining a STPI licenses

The STPI licenses are meant exclusively for new software companies operating in India and provide them with several benefits like zero taxes for 5 years and no export or import duty for hardware and software products. These license holders can also avail office spaces at lower than usual rates.

Suitable office spaces

When opening a software company, the owners should look for suitable office spaces. Ideally, a location that has the most appropriate infrastructural facilities such as consistent internet connection and internet availability should be chosen.

To start with, the entrepreneurs can also look at making the minimum possible investment in securing the office premises. The office space can be rented or leased and second hand computers and furniture can be used to start the operations. They can also avail open source software that will help in minimizing the costs.

Importance of start-up teams and advisory boards

The owners need to find like minded people who are willing to participate in their business. They should share similar levels of enthusiasm, in addition to skill and knowledge. These collaborations are also helpful in providing distribution and marketing channels for the products and offering integrated solutions for users.

Ideally the advisory team should comprise technology enthusiasts, marketing professionals and design experts along with experienced industry professionals who can provide valuable advice.

Recruitment process

Once the company is up and running, the owners should focus on the recruitment process. India has an abundance of well trained professionals especially in the domain of software technology.

However, the companies need to guard against over enthusiasm and choose their employees with care as in the end their success is going to help the organization achieve its objectives. The owners should also remember that the best person for a job should be recruited even if that means paying that individual more than themselves.

Last Updated on May 21, 2015