Startups have become the buzzword around the town. Its eminent success here in India and across the globe has seen increased investments in the entire gamut of start-ups. However, prior to understanding how to begin by establishing a start-up, it is important to understand what classifies as being a startup. As defined by the Department of Industrial Policy and Promotion, a startup in India essentially means an entity registered or incorporated in India which fulfills the following parameters:
- Has been incorporated as a private limited company, registered as a partnership firm, or registered as a limited liability partnership firm
- Such an entity must not have an annual turnover exceeding INR 25 crores for any financial year starting from the year of incorporation or registration
- Such an entity would be considered to be a startup up to a period of seven years from the date of incorporation or registration or a maximum up to a tenure of ten years from the date of incorporation in case of a startup in the biotechnology sector.
- Such an entity should specifically work towards development, innovation, or improvement of products, processes, or services; or at least have a scalable business model which has a high potential of generating employment and/or creating wealth
In case any of such condition is not fulfilled, the entity would cease to enjoy the status of being a startup in India. Further, any entity formed by the splitting up of an existing business organization or is a reconstructed version of the existing business organization would not be defined as a startup. Innovation is the key ingredient for a startup.
Steps to Follow in Order to Start a Startup in India
India is a progressive country to set up a startup venture given the fact that the Indian government is completely supportive of the idea. However, in order to start a startup in India, the primary task that the entity needs to do is to register the entity as a startup following the requisite procedures. The registration process begins with the registration of the name and obtaining a registration certificate for the entity with that name. This process though seems to be easy, this step becomes the most vital step since the startup journey begins with this very step. The registration of Startup entities in India is pretty straightforward and direct and thus the entities do not find it difficult to register their startup.
The steps towards starting a startup in India include:
- Incorporating your business: This step involves the normal procedures for registering any business like obtaining the certificate of Incorporation/Partnership registration, PAN, and other required compliances. The process further requires the entity to fill an eForm or new user registration.
- Registering the Business with Startup India: For registering the business, the owners need to log on to the website of Startup India and follow the easy to follow a simple procedure to complete the registration procedure.
- Uploading the requisite documents: Quite a number of documents needs to be uploaded at the time of registration of an entity with Startup India including:
- A letter of recommendation/support from any recognized incubator or incubation fund or any other recognized and registered investor such as Angel Fund/Private Equity Fund/Accelerator/Angel Network
- Incorporation/Registration Certificate of the entity
- Description of the business in brief
- Answering the question whether the business would avail tax benefits adequately and appropriately: Startups in India are exempted from income tax under the Income Tax Act of India for the initial period of three years starting from the year of incorporation. In order to avail these benefits, the startup entity needs to obtain a certificate from the Inter-Ministerial Board (IMB). Start-ups in India which are recognized by DIPP, Govt. of India can presently also avail IPR related benefits directly without requiring any additional certification from IMB.
- Self-certification of the fact that the business entity satisfies all the conditions required to classify itself as a Startup: The self-certification should be duly and correctly done based on the definition of a startup provided by DIPP as mentioned above.
- Getting the Recognition number: Once the application procedure is completed, the recognition number is generated almost instantly. However, the certificate of recognition is usually issued after careful examination of all the documents uploaded along with the registration details. Therefore, document submission and uploading should be carefully done.
- Completing other formalities specific to the nature of business: Some startups might require other registrations and requirements such as obtaining a Patents, trademarks and/or design registration, obtaining requisite funding, obtaining Digital Signature Certificate(DSC), and acquiring Director Identification Number(DIN)
How to Register Your Startup
Registration of a startup includes four basic steps:
- Acquire Director Identification Number (DIN): Each director of the entity should obtain their individual identification number. As per the amendment act 2006, acquiring a DIN is compulsory for each and every director of any entity including the existing and intending directors of the company.
- Acquire Digital Signature Certificate (DSC): This Digital Signature Certificate is required for ensuring the security and authenticity of the documents of the organization filed electronically. As mandated by The Information Act, 2000 a valid digital signature on the documents submitted electronically makes them a valid document. This digital signature is the only and the safest way that one can submit their documents electronically. Therefore, the digital signature certificate should only be acquired by only those agencies which are appointed by the Controller of Certification Agencies (CCA).
- Creating an account on the MCA Portal for New user registration: This would help in registering the new entity
- Follow the Registration application process for registering the new company as mentioned in the previous segment
Benefits of starting a startup
The Indian Government in order to provide thrust to the industry and promote its growth while helping the Indian economy holistically has provided various facilities for the startup community. Some of the major benefits of starting a startup in India include:
- Simplicity in the process of registration as compared to other types of companies
- Reduction in cost in terms of statutory fees and filing patents
- Easy access to funds as an INR 10,000 crore rupees fund has been created by the government of India to act as a venture capital for the startups planning to start in India.
- Enjoying tax holiday for three years from the date of incorporation
- An exemption in terms of having prior experience/turnover criteria while applying for government tenders
- Getting access to Research Parks to enjoy the R&D Facility required for the startup
- Time-Saving Compliance procedure
- Easy exit policy
- Tax saving schemes for startup investors
Startup India Loan Eligibility
Starting a startup requires funding. However, starting a startup in India does not seem to face a lack of funding since there are a lot of investors willing to invest in the startup community. Further, the startups can also source funds from crowdfunding or they can also apply for an appropriate loan. However, the startup entities should understand the loan eligibility clearly and carefully prior to applying for such loans.