Article explains Meaning of Start Up, Key Points To Understand a Start up, Eligibility Criteria for Startup Recognition, Some Benefits of start up and Registration and fees of Start-up.

Meaning of Start Up

A startup or start-up is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to the new businesses that intend to grow large beyond the solo founder.

Key Points To Understand a Start up

  •  A startup is a company that’s in the initial business stage.
  • Until the business gets off the ground, a startup is often financed by its founders. and the startup attracts outside investment.
  • There are many different ways to fund startups including family and friends, venture capitalists, crowdfunding, and credit.
  • Startups also have to consider where they’ll do business and their legal structure.

Eligibility Criteria for Startup Recognition

  • The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership
  • Turnover should be less than INR 100 Crores in any of the previous financial years
  • An entity shall be considered as a startup up to 10 years from the date of its incorporation
  • The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”

Some Benefits of start up

A. Under Income Tax

1.80 IAC Tax Exemption

Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria for applying to Income Tax exemption (80IAC):

      • The entity should be a recognized Startup
      • Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
      • The Startup should have been incorporated after 1st April, 2016

2. Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting recognition a Startup may apply for Angel Tax Exemption.

Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:

      • The entity should be a DPIIT recognized Startup
      • Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.

B. Reduction in cost

The government also provides lists of facilitators of patents and trademarks. They will provide high quality Intellectual Property Right Services including fast examination of patents at lower fees. The government will bear all facilitator fees and the startup will bear only the statutory fees. They will enjoy 80% reduction in cost of filing patfunds

C. Easy access to funds

A 10,000 crore rupees fund is set-up by government to provide funds to the startups as venture capital. The government is also giving guarantee to the lenders to encourage banks and other financial institutions for providing venture capital.

D. Some other benefits of Start Up

    • In the case of labour laws, no inspections will be conducted for a period of 5 years. Startups may be inspected only on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
    • In the case of environment laws, startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases.

E. Easy exit

In case of exit – A startup can close its business within 90 days from the date of application of winding up.

Registration and fees of Start-up

Step 1: Incorporate your business You must first incorporate your business as a Private Limited Company or a Partnership firm or a Limited Liability Partnership You have to follow all the normal procedures for registration of any business like obtaining the certificate of Incorporation/Partnership registration, PAN, and other required compliances.

Step 2: Register with Startup India

Then the business must be registered as a startup. The entire process is simple and online. All you need to do is log on to the Startup India website and fill up the form with details of your business and upload certain documents.

Step 3:- Documents Required

  • Incorporation/Registration Certificate

You need to upload the certificate of incorporation of your company/LLP (Registration Certificate in case of partnership)

  • Description of your business in brief

A brief description of the innovative nature of your products/services.

Step 4: Answer whether you would like to avail tax benefits

Startups are exempted from income tax for 3 years. But to avail these benefits, they must be certified by the Inter-Ministerial Board (IMB). Start-ups recognized by DIPP, Govt. of India can nowlti directly avail IPR related benefits without requiring any additional certification from IMB.

Step 5: Finally, you must self-certify that you satisfy the following conditions

a) You must register your new company as a Private Limited Company, Partnership firm or a Limited Liability Partnership

b) Your business must be incorporated/registered in India, not before 5 years.

c) Turnover must be less than 25 crores per year.

d) Innovation is a must– the business must be working towards innovating something new or significantly improving the existing used technology.

e) Your business must not be as a result of splitting up or reconstruction of an existing business.

Step 6: Immediately get recognition number

That’s it! On applying you will immediately get a recognition number for your startup. The certificate of recognition will be issued after the examination of all your documents.

Note:- No legal fees is charged by the department

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April 2021