Do I need to register OR incorporate my start up to be able to legally hire people?
This start up will be in India.
Can I give written appointment letter if I am just a sole proprietor? Will it be legally bound?
The difference is the degree of control. I cannot speak to Indian labor laws but when you typically pay a contractor, they are responsible for their own taxes, insurance etc. On the other hand, if something goes wrong, you can order your employee to remedy whereas you'd have to follow what's specified in the contract. The other dimension to think about is whether the work performed is core, and how long do you want to retain the employee. The other aspect to consider is your own temperment as a manager of people ... do you have the time/ability to supervise appropriately.