Startup Recognition and Registration

A startup is term used to identify and promote entrepreneurs in establishing business undertakings. Several benefits/relaxations are offered to startup entities from compliance’s which would have been otherwise applicable to them. Benefits/Relaxations are offered for the initial period of establishment. Exemptions are granted from complying certain provisions of the Companies Act, 2013 such as minimum number of board meetings to be conducted, signing of annual return etc. Before getting recognition as a startup, an entity should be formed either as a Private Company (including One Person Company) or a Registered Partnership Firm or a Limited Liability  Partnership.

Ministry of Corporate Affairs explained the terms “start-up” or “start-up company” as a private company incorporated under the Companies Act, 2013 (18 of 2013) or the Companies Act, 1956 (1 of 1956) and recognized as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.”

Ministry of Corporate Affairs and Industry (Dept. of Policy and Industry) issued a notification (G.S.R. 501 (E)) clarifying the procedures relating to startups.

What are the conditions to be recognized as a startup

What should be the category of entity

It should be formed either as a

• Private limited company or
• Registered partnership firm or
• Limited liability partnership in India;

How long the startup recognition will be available

Startup in Bio Technology Sector

Recognition will be available up to ten years from the date of its incorporation/ registration

Startup in other Sectors

Recognition will be available up to seven years from the date of its incorporation/ registration

What is the limit of turnover

Turnover shall not exceed rupees 25 crores in any financial year

What should be the objective/pre-condition of the startup

Startup should be working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

What is the process of recognition

The process of recognition as a ‘Startup’ shall be through an online application made over the mobile app/ portal set up by the Department of Industrial Policy and Promotion. Entities will be required to submit the online application along with the Certificate of Incorporation/ Registration and other relevant details as may be sought. Startups also have to submit a write-up about the nature of business highlighting how is it working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

Tax Benefits

In order to get Tax Benefits offered to startups, following conditions should be satisfied by the satisfied by the startup entity

In order to obtain tax benefits, a Startup should –

1. be a private limited company (as defined in the Companies Act, 2013) or a limited liability partnership (as defined under the Limited Liability Partnership Act, 2008) which is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019, and
2. be working towards innovation, development or improvement of products or processes or services, or should be a scalable business model with a high potential of employment generation or wealth creation, and
3. obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification as constituted by Department of Industrial Policy and Promotion from time to time.

Recognizing the need to encourage innovation in India, innovativeness shall be considered from a domestic standpoint.

Provided that the mere act of developing:

• products or services or processes which do not have potential for commercialization, or
• undifferentiated products or services or processes, or
• products or services or processes with no or limited incremental value for customers or workflow would not make a Startup eligible for tax benefits.

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