Since beginning of the year, India is focusing upon encouraging skilled people over degree holders. The country is constantly motivating skilled people for doing business and to register it with ‘Startup India’. It is the flagship initiative of the Government to facilitate and offer benefits to new startups. This article is certainly not for praising Startup India. Rather it is for those, who dream to launch their own business or startup. The article provide guidance on how to do startup or business registration and how to notify the Government about their start-ups to get maximum benefits under this campaign.
The Government of India is aiming to get the maximum number of skilled personnel involved in country’s mainstream economy directly through its most ambitious campaign – Startup India.
The agenda of this article is to provide A to Z information for your business registration and why you should register your business with ‘Startup India’.
Startup India is an ocean of nationwide opportunities where your startup can sail without much economical hurdle. And it helps entrepreneur to focus on business rather being distracted by various legal as well as financial stresses.
Why to register a company in India
If you are planning to start your own business or a company, it’s advisable to have it registered. It helps to protect your interest and your idea. If you have registered, you can also avail various tax reliefs and benefits offered from Government.
Since couple of years, the Government has made legal body formation a lot easier. It is advisable to register your company in earlier stages. There are certain benefits of having your business registered as a legal entity. Like –
- Registration provides authenticity to your services/products and secures your business.
- Registration makes you relaxed on legal front and let you focus on business expansion and improvement.
- You can claim different incentives and interim tax deduction announced by the Government.
- Once you register your business, you can freely brand it across the country.
- Besides this, you can have your own business trademark.
- The Government only purchases services/goods from a registered business only.
The Government have also revised rules and regulation of registration and made them more user friendly. Ministry of Commerce, India has also declared this in the company formation policy in 2016. The intention is clear – motivate more and more entrepreneurs to register their companies.
Types of Companies
Currently there are 5 main types legal existence that you can adopt for your business according to your need. We will not talk on public sector companies in this article.
- Sole Proprietorship – It is a simplest and very basic registration for launching your idea as a business or startup.
- One Person Company – All rights of the limited liability legal entity belong to single founder.
- Partnership – Simple and best when you have a partner to start a business.
- Limited Liability Partnership – Simple and best when partners have low budget with limited liability.
- Private Limited – Full flagged company where you can have shares, investors, VC funding with a chance of unlimited growth.
Just contact any Chartered Accountant of your city for your company registration. He will guide you through all prerequisites and legal requirements of company formation. You can just search justdial.com to locate a chartered accountant nearby your area.
First, it’s important to know startup definition as per the Government Rules which are eligible for the Startup India Program.
Startup India “Startup Definition”
Any Legal entity will be identified as a startup.
- Till up to five years from the date of incorporation.
- If its turnover does not exceed 25 crores in the last five financial years.
- It is working towards innovation, development, deployment, and commercialization of new products, processes, or services driven by technology or intellectual property.
Points to be remember :-
A corporation, entity or a business is termed as a start-up if
- The entity is registered under Companies Act, 2013
- It is registered under section 59 of Partnership Act, 1932, as a partnership firm
- Or registered under Limited Liability Partnership Act, 2002, as a limited liability partnership
Note :- Meansare not under the Startup India Scheme.
In order to obtain tax benefits, one has to obtain a certificate from the Inter-Ministerial Board of certification. The board consists of the following:
- Joint Secretary, Department of Industrial Policy and Promotion.
- Representative of Department of Science and Technology.
- Representative of Department of Biotechnology.
Points to be Remember :- an entity shall be considered a startup only if it aims to develop and commercialize – a new product or a service or a process or significantly improves on a product or service or process which will add significant value for customers or workflow.
So if your Startup is like another E-commerce Startup Website or IT Sector then its not Eligible for the tax benefits as you will be not defined as Startup.
Key announcements made during the Startup India Standup India action plan
- Start-ups will be exempted from paying income tax on their income for the first 3 years
- 80% rebate on filing a patent application.
- Fast track mechanism for patent applications
- Exemption of tax on capital gain. And when person invests its own wealth, then they will get exemption from capital gains tax.
- Mobile app will be launched on April 01, 2016 which will enable start-ups to get registered within a day. The app will have a small application form for registration.
- Web portal will be launched on April 01, 2016 for clearances, approvals, and registrations
- Compliance regime based on self-certification
- No inspection for 3 years of start-up businesses in respect of labor, environment law compliance post self-certification
- Easier norms for start-ups to exit within 90 days. Bill will be introduced in the parliament.
- Relaxed norms of public procurement for start-ups. There would be no requirement of turnover or experience.
- Government will setup a fund with an initial corpus of Rs. 2, 500 crore and total corpus of Rs. 10, 000 crore over a period of 4 years
- A hub for startup India will be started with single point of contact.
Why to register your company with Startup India?
The Indian Prime Minister has revealed a number of promising initiatives from the ‘Startup Action Plan’ (see above point) to encourage digital entrepreneurship. Small and startup businesses are expected to benefit from the tax reduction, funding support and many other benefits from the government. The details are as following.
The government has also launched a mobile app in April 2016. It acts as a window for information exchange and interacting with government and regulatory bodies. Hence, it would help start a new company in a single day as all paperwork would be filed through the mobile app and portal.
Benefits to Startups under Startup India
1: Introduction of compliance regime based on self-certification
Start-ups would be also allowed to self-certify compliance with labor and environment laws. As far as labor laws are concerned, no inspection would be conducted for a period of three years. As a result, in case of environment laws, start-ups under ‘white’ category would be able to self-certify compliance.
2: Fast track mechanisms of start-up patent applications
The government would allow start-ups to realize the value of their intellectual property rights (IPR) at the earliest possible. Hence, patent applications of the start-ups will be fast tracked for examination and disposal.
3: Faster exits for start-ups
Provisions for fast-tracking closure of businesses have been included in ‘The insolvency and Bankruptcy Bill, 2015’. Thefore start-ups, who have simple debt structures, can be allowed to wind up within a period of 90 days after filing an application.
4: Tax exemption to start-ups for 3 years
Start-ups set up after April 1, 2016, shall be exempted from income-tax for a period of three years.
5: Tax exemption on investments above fair market value
Exemption would be available to venture capital funds to invest in start-ups above fair market value (FMV). Hence it would also include investments made by incubators above FMV
6: Tax exemption on capital gains
Tax on long-term capital gains in unlisted entities. And the same would be less than present rate up to 20 percent.
7: Funding Support
The government shall also provide support in funding the startups in the following manner.
- Credit guarantee fund for start-ups
- A credit guarantee mechanism through National Credit Guarantee Trust Company and SIDBI to be rolled out with a budgetary corpus of Rs 500 crore per year for the next four years
- Funding support through fund of funds with a corpus of Rs 10,000 crore
- The government to set up a fund with an initial corpus of Rs 2500 crore and a total corpus of Rs 10000 crore over a period of four years
- Institution of innovation awards: 3 per state/UT and 3 national level
- Providing support to State Innovation councils for awareness creation and organising state-level workshops/conferences
- Launch of Grand Innovation Challenge Awards for finding low-cost solution to intractable problems
How to Register with Startup India Campaign?
In the official notification which is issued by the govt in that said startups have first of all register their business as Legal entity as DIPP(Department of Industrial Policy and Promotion)., Limited Liability Partnership or Partnership. Therefore then they have to register through a mobile app or through the portal of
The Startup will have to submit their application along with any of the Following Documents :-
- A recommendation in a format specified by DIPP from an incubator established in a post-graduate college in the country.
- A letter of support from any central or state government funded incubator to promote innovation.
- A recommendation in a format specified by DIPP (with regard to innovative nature of business) from any incubator recognized by the Central Government.
- A letter of funding of not less than 20 per cent in equity by any incubation or angel fund/PE fund/accelerator or angel network duly registered with Securities and Exchange Board of India that endorses its innovative nature of business.
- A letter of funding by the Central or State government as part of any scheme to promote innovation.
- Finally a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.
Once the application will be uploaded then, a recognition number will be issued to the startup in real time. Furthermore the number is found to be obtained without uploading the documents. Same as uploading the forged documents, a fine on the applicant will be levied, which shall be 50 per cent of the paid-up capital of the startup and not less than Rs 25,000.