Registration Process For StartUp Businesses

Respected Prime Minister Mr. Narendra Modi unveiled the most ambitious Plan for encouraging and giving a much needed boost for innovation, which is known as “Startup India” campaign. This campaign is expected to promote and nurture the budding entrepreneurs in India. In this article, we will explain what is an eligible Startup as per the Startup campaign and how to register for one.

What is an eligible startup?

 eligible startup

Any organization will be offered a status of eligible Startup only if,

  • Such entity is registered for 5 years or less from the date of registration,

  • Such entity has not recorded turnover for more than Rs.25 crores on the previous 5 years

  • Such entity is striving hard to achieve innovation, development, deployment or commercialization of any product or processes or services, through technology or intellectual property.  

  • This entity should have recommendation or should be supported by the incubator (Angel funds/Private equity/ Accelerator etc.) or should be funded by Government of India or is given patent/ trademark with respect to its business.

  • This entity should not have been formed by splitting up or reconstruction of any existing business

  • This entity should be in possession of at least 80% first hand and new machinery and equipment   

  • If conferred eligibility, the eligible startup should not have turnover more than Rs.25 crores for next 5 years from the day on which the entity starts availing the benefit of tax exemption for its profits.

However, there is one more constraint which requires that only below type of entity will be eligible for the benefits offered as a startup.

  • Entity should be registered as a company under Companies Act 2013 (one person companies also covered herein) or,

  • Entity should be registered as a partnership firm under Partnership Act 1932 or,

  • Entity should be registered as LLP under Limited Liability Partnership Act 2002.

Accordingly, sole proprietors or HUF are not eligible for availing the benefits as a startup.

Benefits offered to startups

Benefits offered to startups

  • Simplified processing formalities by introducing single window clearance

  • Creation of Fund of Funds which has estimated balance of Rs.10,000 crores

  • Reduction in patent registration fees (Intellectual property)

  • Exit window for 90 days is allowed if any startup wishes to surrender its eligibility

  • Tax exemption for profits earned for the period of 3 years

  • Capital gains exempted (subject to certain conditions)

  • Minimal human intervention and automated processing of registration will bring down corruption and red tape.

  • Self-compliance check introduced to bring down non-compliance etc.

How to register a startup to be eligible for these benefits?

register a startup to be eligible for these benefits

  • Step 1 :- The entity can register on MCA (Ministry of Corporate Affairs) portal if it is a company or it can get itself registered through Registrar of Firms if it is partnership firm or LLP. This primary registration (based on entity type) will be carried out as per pre-existing procedures and formalities.

  1. Company :- Private limited company needs to be registered through MCA portal and authorities. This would need you to obtain Memorandum of Association, Article of Association etc. The registration fees will vary as per different states.

  2. Partnership Firm and LLP :- This entity can be registered through Registrar of Partnership Firms. Only difference here will be that Partnership firm will have unlimited liability whereas LLP will boast of limited liability like private limited company. Various documents will be required like partnership deed, PAN card details etc.

Once registered as a company or partnership firm or LLP, the entity can go forward with application on Startup India portal or Mobile app for the same for obtaining the status of eligible startup.

  • Step 2 :- Ensure that the legal entity as registered in step 1 adheres to or can be subjected to conditions laid out for eligibility as a Startup as per Startup India Official gazette. Those conditions are mentioned under the heading “what is an eligible startup?” in the article. Once you confirm that the startup entity conforms to the conditions and restrictions then carry out the formalities.

  • Step 3 :- This step is applicable if your startup is eligible to apply for eligible startup as per Startup India Campaign. Considering that your entity is legally registered under one of the authorities (MCA or Registrar of Firms), you need to follow below procedures.

  1. Log in to Startup India portal and fill in the registration number, date of registration, PAN, address details etc. of the registered entity.

  2. Fill in the authorized representative details, director or partner’s details, etc.

  3. Incorporation certificate / Registration certificate of any company or LLP or Partnership etc.

  4. Select supporting documents and self-certifications if any.

  5. Recommendation letter required from any of the following:

  • Recommendation (with regard to innovation nature of business), in a format specified by Department of Industrial Policy and Promotion, from any incubator established in post-graduate college in India;

OR

  • Letter of support by any Incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation;

OR

  • Letter of recommendation from Industry association recognized by DEPARTMENT OF INDUSTRIAL POLICY AND PROMOTION;

OR

  • Recommendation (with regard to innovative nature of business ), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India;

OR

  • Letter of funding of not less than 20 percent in equity by any Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/ Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business.
  • Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit;

OR

  • Letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation;

OR

  • Patent filed and published in the Journal by the India Patent Office in areas affiliated with the nature of business being promoted.
  1. Availment of tax and IPR (Intellectual Property Rights) benefits which would have to be supported by the evaluation and approval from the Inter-Ministerial Board. (DIPP has set up Inter- Ministerial Board for verifying the eligibility of startups to confer the Startup status so that those entities will be able to avail the tax exemption as well as IPR protection benefit).

  2. Make sure that you have certified official notifications and conditions subject to which the registration will be granted.

Digitization and automation of the entire registration procedure as well as simultaneous request for granting the tax-exempt status and requesting for availment of IPR related events (IPR protection, reduction of almost 80% of patent registration fees etc.), is expected to boost the startup sector. This will boost up the innovation and development and introduce India as upcoming “Startup Hub” 

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