START-UP

START-UP In India

WHAT IS A START-UP?

Nowadays, the ‘start-up’ culture has caught on like forest fire. Globally, a number of budding entrepreneurs are working to revolutionize the economic and social setup. To encourage this economic setup, the Government of India (GOI) has decided to support this process and help develop India as a startup hub.

A startup company is a business project which is typically a newly emerged business that aims to meet a marketplace need by developing a viable business model around a product, service, process or a platform. A startup is usually a company designed to effectively develop and validate a scalable business model.  It is founded by two or more entrepreneurs on a product or service which is unique in nature and belief that there will be increased demand on such product and service. For Example-Amazon, Urban-clap, Uber, etc.

ELIGIBILITY CRITERIA OF A COMPANY TO BE A START UPS IN INDIA

  • Startup Company based in India should be a private limited company under the Companies’ Act, 2013 or it should be registered under Indian Partnership Act, 1932 as a partnership firm or it could also be registered under the Limited Liability Partnership Act, 2008 as a limited liability partnership firm.
  • The company should have an Annual Turnover which shall not exceed Rs. 100 crores since its incorporation for any of the financial years.
  • Indian start up firm should be new it must not be the result of split or restructure of an already existing business.
  • An entity shall be considered as a startup up to 10 years from the date of its incorporation in India.
  • Startup must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

AVAILABLE RESOURCES FOR DIRECT INVESTMENT IN OVERSEAS:

Registration of start-up: http://www.startupindia.gov.in/ 

  1. Registration of business under Private Limited Company or Limited Liability partnership or Limited Liability partnership.
  2. Obtaining Business PAN Card.
  3. Submission of brief write-ups explaining the innovative nature of the business, creativity, problem-solving aspect, any award or recognition received by the start-up, generation of revenue.
  4. Once, your profile is created on the website, startups in India can apply for various acceleration, incubator/mentorship programmes and other challenges on the website along with getting access to resources like Learning and Development Program, Government Schemes, State Polices for Startups and pro-bono services.

 

DPIIT Registration

The next step after creating the profile on the Startup India Website is to avail Department for Promotion of Industry and Internal Trade (DPIIT) Recognition. This recognition helps the startups to avail benefits like access to high-quality intellectual property services and resources, relaxation in public procurement norms, self-certification under labour and environment laws, easy winding of company, access to Fund of Funds, tax exemption for 3 consecutive years and tax exemption on investment above fair market value.

For getting DPIIT Recognition, click on the ‘Get Recognized’ button if you are a new user. If you are an existing user click on the ‘Dashboard button’ and then ‘DPIIT Recognition’. The ‘Recognition Application Detail’ page opens. On this page click on ‘View Details’ under the Registration Details section. Fill up the ‘Startup Recognition Form’ and click on ‘Submit’.

Recognition number

The certificate of recognition will be issued after the examination of all your documents which is usually done in 2 days after submitting the details online. However, if on subsequent verification, it is found to be obtained that the required document is not uploaded/wrong document uploaded or a forged document has been uploaded then you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.

Further it is to be remembered that an entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds one hundred crore rupees.

During the initial years, budding entrepreneurs struggle to evaluate the feasibility of their business idea. Also, there are limited alternative sources of finance available to the small and growing entrepreneurs, leading to constrained cash funds. Hence the GOI feels it is imperative to provide them with a competitive platform.

1. Tax Benefits

Waiver from income tax at the initial stage

a company that meets the criteria for an eligible startup in India and that has been incorporated between April 1st, 2016 and April 1st, 2021 can avail of a deduction of 100% of the profits for a block of three years within the first seven years it was incorporated.

Relaxation for carrying forward losses and set-off

The income tax law provides for the carrying forward and set off of business losses. This set off will be denied for any private companies if there is a 50% or more change in the shareholding pattern of that company from the year in which they saw losses.

Exemption from long-term capital gains tax to investors of startups

From the transfer of a residential property that arises to a HUF or an individual, one is exempted from paying tax on their long-term capital gain where the net consideration is invested in the equity shares of any eligible startups.

Tax holiday

An eligible start-up in India can claim a 100 per cent deduction against its business income for consecutive 3 years. These can be any 3 years out of 10 years since its incorporation.

2. Government Schemes for Start ups

some important schemes that government has implemented for promotion of startups are:

Start Up India

The government has already launched the I-MADE programme to assist Indian entrepreneurs in creating 10 lakh (1 million) mobile app start-ups, as well as the MUDRA Bank’s scheme (Pradhan Mantri Mudra Yojana) to provide micro-finance, low-interest rate loans to entrepreneurs from low socioeconomic backgrounds. This program has been allotted an initial capital of 20,000 crores (equal to 230 billion or US$3.2 billion in 2019).

Make in India

It is a program launched by the Prime Minister as a wider set of nation-building initiatives. On the backbone of “Make in India”, “The Startup India Action Plan” is a flagship initiative of the GOI in an attempt to establish India on the global markets. Under this program, there are a number of benefits offered by the GOI to help these budding initiatives.

ATAL Innovation Mission

The government scheme, set up by Niti Aayog, was created to promote an innovative culture and the development of the spirit of entrepreneurship across India. The scheme aims to create cooperation between state, central, and local innovation schemes and implement entrepreneurship spirit from schools to corporates by developing world-class Atal Incubators (AICs). This would help to address commercial and social entrepreneurship ventures in India.

e-Biz Portal

Founded in 2013, this is the first online platform that allows government-to-business (G2B) communication. e-Biz’s portal primary purpose was to create an entrepreneurship friendly atmosphere in the country. The platform has been developed by Infosys and has launched 29 services across 5 states in India. It is a single communication online forum for Indian businesspeople and investors for conducting transactions, clearances, and activities related to both of them.

Support for International Patent Protection in Electronics & Information Technology (SIP-EIT)

The SIP-EIT scheme was launched by the Ministry of Electronics and Information Technology to provide financial funding for MSMEs and Technology Startups to encourage innovation, acknowledge international patent rights and optimise the growth of the sector in the county.  Businesses that want to go global need to apply for intellectual property rights as innovations are at risk of being stolen or misappropriated. Hence, the government has executed various protection measures through the SIP-EIT scheme.

OTHER AREAS

FUNDING SUPPORT

One of the key challenges faced by Startups is access to finance. Often Startups, due to lack of collaterals or existing cash flows, fail to justify the loans. Besides, the high risk nature of Startups, hampers their investment attractiveness. In order to provide funding support to Startups,

GOI to set up “fund a fund” with a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). Fund a Fund shall not invest directly in a startup, but shall participate in the capital of SEBI registered Venture Funds.

Setup credit guarantee mechanism through National Credit Guarantee Trust Company, to encourage Banks and Lenders to extend credit to start ups.

COMPLIANCE REGIME

Regulatory formalities, even for an established business, can be onerous. For a startup focusing its energies on establishing a new business, this might become an unravelling hurdle. Startups required only to comply with 9 primary labor and environment laws.

Self-certification allowed No inspection for labor law compliances for first 3 years. Under Environmental Laws – Central Pollution Control Board to put Startups under- WHITE CATEGORY.

INTELLECTUAL PROPERTY RIGHTS

Limited resources make it tough for startups to sustain in this highly competitive world. With innovative ideas at the forefront it is crucial that they protect their IP rights.

  1. GOI to start “Startup Intellectual Property Protection Scheme” (SIPP) scheme, to facilitate filing of Patents, Trademarks and Designs.
  2. Setup process to fast track patent applications.
  3. Appoint a panel of Facilitators to assist in filing of IP applications, provide general advice on IP rights and information on protection and promotion of IPRs in other countries.
  4. GOI to bear facilitation cost, and the startups to bear only statutory fees.
  5. Up to 80% rebate on filing of application

PUBLIC PROCUREMENTS

A number of tenders are floated yearly to full fill the government sector’s procurement needs. This can be a business opportunity for budding business and recognizing the same GOI is making provisions to facilitate business generation for startups through this procurement process.

Central and all State Governments and PSUs to make 20 percent procurement from Micro Small and Medium Enterprise (MSME).

Startups (in the manufacturing sector) to be exempt from “prior experience/ turnover” criteria, but no relaxation in quality standards or technical parameters.

WINDING DOWN THE BUSINESS

From the legal standpoint, there are basically three ways to shut down a startup:

  1. Fast Track Exit Mode
  2. Court or Tribunal Route
  3. Voluntary Closure

In addition to the above stated means, The Insolvency and Bankruptcy Bill, 2015 is a new closure tool that entrepreneurs can use. Leveraging this bill requires startups to have simple debt structures, where an insolvency professional is hired to liquidate the assets of the company within 90 days, in accordance to the ‘Startup India Action Plan’.

If a startup does not wish to operate but also not shut down, it can apply to be a ‘Dormant Company’, that allows a company to stay afloat with minimum compliance. However, a company dormant for a period of 5 years is automatically struck off from the ROC.

CONCLUSION

Start-ups based in India that are already enriched with innovation and creativity to bring change in the market is further supported by the Government so as to initiate and help bring new ideas into force. It is not only of supporting start-ups but also acts as a step towards socio-economic development of the country. Development in the society is necessary and it can be brought only through ideas that acts as a disruption and introduce new and efficient products and services in the market.

SERVICES PROVIDED BY LEGALLANDS

We help the aspiring entrepreneurs of start ups in India to easily go through the procedure of opening up a startup without having to face any difficulties with the tedious and strenuous procedures. By following the three important aspects of a business setup, we abide by all the legal compliances, IPRs, Contract Drafting & Negotiations, dealing with the public procurements, tax exemptions, dissolution and most importantly, the funding process.

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Managing Partner

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