Modern world is a world full of creative abilities, innovative ideas and turning such a potential idea into a business, is commonly known as “start-up” these days. Whenever any person or individual who possesses a creative and innovative idea, which also has a potential to either generate wealth or employment or both, and contribute towards the economy of the country, desires to seek registration and claim the encouragement provided by the Government of India, he can give it a form of a legal entity and register such entity under the Startup India Registration portal through the help of a dedicated Start-up India Team, which reports to the Department for Industrial Policy and Promotion (DPIIT).
According to the Ministry of Corporate Affairs, any private company/ partnership firm or LLP which has been incorporated for less than ten years and has a turnover of less than 100 crores could be recognized as a “Start-up” under the “Start-up India Scheme” subject to satisfaction of other conditions.
Naturally, most of the start-ups are shoe-string operations in nature, started by family members or a small group of friends and initial funding contributions are made by either their founders or family members. If a creative idea seems to have merit, potential investors like Venture capitalists Firms and investors keep a close eye on upcoming start-ups in India and undertaking sponsorship in potential start-ups and novel ideas.
Thus, the Government of India initiated the Start-up India Scheme on 16th January, 2016, the rolling out several programs with the objective of –
- Supporting and uplifting entrepreneurial innovation and creativity.
- Establishing a robust start-up ecosystem.
- Employment Generation i.e. changing India into a country of job creators instead of job seekers.
Startup India Registration with Legalmart
The whole process of registering a business as a start-up is simple and hassle-free, but requires application filling with precision, as not sufficiently explaining your business idea or the potential to earn revenues or employment –generation can lead to rejection of the application, Further, if you fail to do the same, for three times after rejection, it becomes difficult to get DPIIT registration for your business. Thus, for expert assistance in form filling and getting your start-up India recognition successfully for your business, refer to Legalmart and get the same within 7 days of application submission.
Benefits of Startup India Registration
The Start-up scheme intends to encourage Start-ups by providing various benefits to the registered legal entity. Such benefits include financial and non-financial benefits for legal entities on fulfilling the eligibility criteria. Following are the benefits of registering as a start -up with DPIIT-
A. TAX EXEMPTIONS UNDER INCOME-TAX ACT 1961
i. Section 56(2) (vii) (b) –
Section 56(2) (vii) (b) of the above-mentioned Act provides for chargeability of tax in cases where a company is in receipt of consideration for issue of shares which is in excess of the Fair Market Value (FMV) and the same in the hands of the recipient as Income From Other Sources.
However, any entity registered as a start-up is provided exemption from the levy of such taxes on this excess consideration, which would be really a hardship in case of an angel/VC round, where the angel or VC invests at the excess of the fair market value and now such exemption is to a registered start- up is the levy of tax on this excess consideration.
ii. Exemption under Section 80-IAC-
A duly registered start-up and recognized by the DPIIT has the benefit to no income-tax burden for initial three years of recognition out of 10 years from the date of its incorporation. The sole reason being saving on tax payments can boost such entity to re-invest funds in the company and prosper further, which can be especially beneficial for a start-up.
iii. Tax Exemption under Section 54(GB)-
Section 54GB provides tax chargeability on long-term capital gains received by an individual/entity in the event of sale of a residential property. Thus, a duly recognized start-up is exempted from payment of taxes on capital gain by sale of such property, if such sum is intended and invested in the start-up.
B. RELAXATION UNDER LABOUR AND EMPLOYMENT LAWS-
Compliance with the applicable legal provisions and rules is generally expected from every legal entity registered under the laws of India including registration of establishments under various authorities, obtaining permissions and licenses, adherence to safety norms, compliance with employee welfare provisions such as gratuity etc. and not to mention such entities are also subject to various audits like environmental or labour audit on fulfilment of conditions.
Considering the initial expenses and other problems, any registered start-up has the benefit to self-certify there compliance to applicable laws under the applicable labour and environmental laws for a total time-period of five years effective from the date of its incorporation.
Following Labour Laws are open to self-certification by registered entities-
- Building and Other Construction Workers Regulation Act, 1996.
- The Inter-State Migrant Workmen Act, 1996.
- The Payment of Gratuity Act, 1972.
- The Contract Labour Regulation Act, 1970.
- The Employees Provident Funds and Miscellaneous Act, 1952.
- The Employees State Insurance Act, 1948.
Similarly, these environmental laws are allowed exemption and to self-certify their compliance-
- The Water Pollution Prevention Act, 1974.
- The Water Pollution Cess (Amendment) Act, 2003.
- The Air Pollution Prevention Act, 1981.
C. REDUCED CHARGES FOR IPR RIGHTS
Considering most of the start-ups lack capital contribution and do get started with smaller contributions either from family or friends. The Government of India has allowed an exemption in respect of the registration charges applicable for protecting Intellectual Property ownership rights of an entity or a person concerned, which is another huge point of relaxation for such start-ups. Thus, a start-up recognized under the laws of India is competent to incorporate 80% discount for patents and about 50% reduction in filling application for Trademarks. Additionally, a recognized start-up can also submit and get a rebate claim of 80% in patent fees.
D. EASE IN PUBLIC PROCURING STANDARDS-
Public procurement may be defined as a process by which governments and state-owned enterprises seek quotations for purchase of goods and services from the private sector entities. Though, any entity can participate in public procurement, most of the contracts do mandate higher eligibility conditions, which sometimes makes it little discouraging for smaller businesses to participate in such.
However, a DPIIT registered start-up is allowed to submit tender for approval with fewer eligibility requirements, which in present are available for fewer categories of product or services such as computers, automobiles, and office supplies. Similarly, registering your business under start up India opens your access to India’s largest e-procurement portal known as Government e-Marketplace, where businesses can register themselves and list their products as sellers.
Therefore, start-ups are allowed exemptions under the following categories-
- Security Deposit Payments.
- Turnover Requirements.
- Business experience in case of Govt tenders.
E. EASY ACCESS TO FUNDS
Start-ups in India are allowed registration where the business has sufficient potential to generate wealth and hence greater profitability. Therefore, start-ups are a point of attraction for investors, venture capitalists and angel investors.
F. HASSLE- FREE WINDING UP OF COMPANY
There are always equal possibilities for a business to get success or fail in the beginning itself. Thus, entities who have acquired start-up registration for their business are called “Fast-track firms” and find their business failing, may wound up their business within 90 days of making an application for winding up as compared to other entities who require 180 days for winding up. For which an insolvency professional will be appointed who shall undertake the process of liquidation within 6 months of making such an application for making an exit.
G. SIDBI FUNDS AS CORPUS FUNDS-
For the purpose of providing equity funding assistance for encouraging & helping the growth and development of enterprises who are driven by innovation, the Government has provided a corpus fund of Rs. 10,000 crores to be managed by Small Industries Development Bank of India. Here, the Government of India makes contributions towards the capital of SEBI registered funds which re-invest capital in these start-ups.
Disadvantages of Startup India Registration
- Risk of Business Failure- Since most of the start-ups in India are started by individuals or group of professionals which lacks business capital. Further, the costs associated with the start-up business are higher which includes costs of business operations and hefty compliances including the closure of business. Similarly, when there are equal possibilities for a business idea to either work or fail, businesses might fail to seize adequate market opportunities or either overestimate their sales projections.
- Heavy Compliances- Though the benefits associated with start-up registration are multifarious, registering your entity as start-up needs additional compliances and hefty fines where the company is unable to do the same.
- Team Organization & Feasibility- At present, most of the start-ups are created by people who do not want to continue their jobs out of any dissatisfaction or desperation, either themselves or with family or friends. Thus, there is lack of professionalism in business operations and greater possibilities for team organization and understanding between members and such disagreements pave the way to failure of business. Further, a start-up needs management and staff with their core competencies and there is less room for job-security, better payments and promotion perks as against established businesses, which is why people are reluctant to work in a start-up environment.
- Seed Funding for only exceptional start-ups- In the actual sense, start-ups are only underdeveloped business ideas started with minimal capital contributions, and are in immense need of encouragement in the form of funding’s. Whereas, it is really tough for a start-up to access seed funding until and unless it is exceptionally potential to generate profits in near future. Further, it is even tougher for a business to compete for market access with already established entities with resources. Such established players use such resources to push them out of relevant markets when such start-up businesses look as a possible threat.
- Lack of Developed Ecosystem in India- India is still in the development phase, where there is lack of ecosystem for fewer start-ups such as e-commerce businesses. Therefore, where there is lack of guidance and mentorship to face any possible problems that may come in between.
Eligibility criteria of Startup India Registration
Following the eligibility-criteria for acquiring start-up registration under following categories-
- Age of Company: An Entity intending to acquire DPIIT registration should not be more than 10 years in existence and the total period of 10 years should have not been exceeded from the date of incorporation.
- Company Type: Only, following entities are allowed start-up registration if they have been incorporates as-
- A Private Limited Company.
- A Limited Liability Partnership.
- A Partnership Firm.
- Annual Turnover: The entity should not hold an annual turnover above Rs. 100 crore for any of the financial years since the year of its incorporation.
- Original Entity: Such a business entity should be original in the sense that it should not be an outcome of an old business being either split up or reconstructed in any way.
- Innovative & Scalable: Such entities should be working towards the development or improvement of any product, process or service and/or should have a scalable business model with high potential towards creation of wealth & employment generation in the country.
Documents required for Startup India Registration
- Entity Registration Documents (self-attested)
- Memorandum of Association for Pvt. Ltd. / LLP Deed/Partnership deed
- Board Resolution (If Any)
- Copies of Annual Accounts of the entity last three financial years (for availing exemptions)
- Copy of ITRs for the last three financial years (for availing exemptions)
- Identification Documents of Authorized Person/ Directors/LLP Partners/Partners
- A Letter of Authorization (LOA) signed by the Representative Director/partner/or any authorized officer of the entity
How to Register Startup India Online
Following is the step-by-step online procedure to register a company in India-
Step 1: Incorporate your business as a Private Limited Co. / Partnership Firm/ LLP
As a first step towards recognizing your entity as a start-up, you are required to register your entity as either a Partnership Firm/ Limited Liability Partnership or a Private Limited Company. You will be required to create a Partnership Deed/ LLP Deed or a MOA/AOA for your company and seek registration with the prescribed authority.
Step 2: Create an user Id & Password–
Further, create a user Id and log in password to log on to the official site of the Start-up India registration and enter entity details and submit a request to start-up recognition.
Step 3: Upload Self-Attested Documents in pdf format-
Along with the start-up information, you will be required to submit request after uploading the following documents-
- A duly certified copy of the Certificate of Incorporation of entity.
- Identity details and Address Proof documents of the Authorized Partner/ director and other Partners/directors.
- A pitch deck presentation describing the procedure to be followed by the start-up towards the manufacturing or performance of services including the wealth & revenue generation prospects.
- Any award/recognition received by entity.
- LOA signed by the authorized officer of the entity.
Step 4: Finally, you must self-certify of the following mandatory requirement to submit a valid request-
- Your entity is either a Private Limited Company, Partnership firm or a Limited Liability Partnership.
- Your entity has not been incorporated for more than seven years of period.
- Your entity never held a turnover of more than 100 crores during any Financial Year.
- Your entity is working towards innovation/improvement in the existing products/services.
Why you Choose Legalmart
Therefore, there are various advantages of registering your business –entity as start-up which outweigh certain disadvantages associated with the same. Remember if your start-up has potential to generate employment or gain wealth in future, you can get seed funding like Cardekho.com, which is a new start-up itself. At Legalmart, we have an expert panel of professionals to guide you throughout the process, collect, prepare and submit documents and assist you to get start-up recognition within a period of seven days. So, get one and start your entrepreneurial journey! Good luck!