Startup Registration in India – Steps to Register your Startup
What is a Startup?
A Startup is a newly established business, usually small started by 1 or a group of individuals. What differentiates it from other new businesses is that a Startup offers a new product or service that is not being given elsewhere in the same way. The primary condition for an entity to be considered as a Startup Entity is that the entity is 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.The business either develops a new product/ service or redevelops a current product/service into something better.
How to register your Startup with Startup India
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 a 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. Next, enter the OTP which is sent to your e mail and other details like, Startup as type of user, name and stage of the Startup, etc. After entering these details, the Startup India profile is created.
Once, your profile is created on the website, Startups can apply for various acceleration, incubator/mentor-ship programme and other challenges on the website along with getting accessto resources like Learning and Development Program, Government Schemes, State Polices for Startups and pro-bono services.
Step 3: Get DPIIT Recognition
The next step after creating the profile on the Startup India Website is to avail Department for Promotion of Industry and Internal Trade (DPIIT) Recognition. This recognition helps the Startups to avail benefits like access to high quality intellectual Property services and resources, relaxation in public procurement norms, self-certification under labour and environment laws, easy winding of company, access to Fund of Funds, tax exemption for 3 consecutive years and tax exemption on investment above fair market value.
Step 4: Recognition Application
The ‘Recognition Application Detail’ page opens. On this page click on ‘View Details’ under the Registration Details section. Fill up the ‘Startup Recognition Form’ and click on ‘Submit’.
Step 5: Documents to be uploaded for Registration
• Incorporation / Registration Certificate of Startup
• Details of the Directors
• Whether any awards/recognition received by the entity? if yes, need to upload document with respect to award/recognition received.
• What is the problem the startup is solving? It needs to be explained in maximum 250 words.
• How does your startup propose to solve above mentioned problem? It needs to be explained in maximum 250 words.
• What is the uniqueness of your solution? It needs to be explained in maximum 250 words.
• How does your startup generate revenue? It needs to be explained in maximum 250 words.
• Proof of concept like pitch deck/website link/video (in case of a validation/ early traction/scaling stage Startup)
• Patent and trademark details (Optional)
• PAN Number
Step 6: Immediately get recognition number
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 which is usually done in a few days after submitting the details online.
However, be careful while uploading the documents. If on subsequent verification, it is found to be obtained that the required document is not uploaded/wrong document uploaded or a forged document has been uploaded then you shall be liable to a fine of 50% of your paid-up capital of the Startup with a minimum fine of Rs. 25,000.
Step 7: Other advantages
If you need a patent for your innovation or a trademark for your business, you can easily approach any from the list of facilitators issued by the government. You will need to bear only the statutory fees thus getting an 80% reduction in fees.
One of the key challenges faced by many Startups has been accessing to finance. Due to lack of experience, security or existing cash flows, entrepreneurs fail to attract investors. Besides, the high-risk nature of Startups, as a significant percentage fail to take-off, puts off many investors.
In order to provide funding support, Government has set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund is in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
c. Self-Certification Under Employment and Labour Laws
Startups can self-certify under labour laws and environment laws so that their compliance costs are reduced. Self-certification is provided to reduce regulatory burden thereby allowing them to focus on their core business. Startups are allowed to self-certify their compliances under six labour laws and three environment laws for a period of 3 to 5 years from the date of incorporation.
Self – certification in following Labour Laws:
The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
The Payment of Gratuity Act, 1972
The Contract Labour (Regulation and Abolition) Act, 1970
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 The Employees’ State Insurance Act, 1948
Self – certification in following Environment Laws:
The Water (Prevention & Control of Pollution) Act, 1974
The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003 The Air (Prevention & Control of Pollution) Act, 1981
d. Faster Exit
Due to innovative nature of Startups, unfortunately a significant percentage of startups fail to succeed. In the event of a startup failure, it is important to reallocate capital and resources left to more productive options available and therefore, a swift and simple winding up process has been set up for Startups. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process where their capital remains needlessly stuck.
e. Tax Exemption
i. Income Tax Exemption under section 80IAC for 3 years
With a view to stimulate the development of Startups in India and provide them a competitive platform, tax exemption to recognised startups for 3 years on approval basis has been allowed.
Startups incorporated on or after 1st April 2016 can apply for income tax exemption under section 80IAC of the Income Tax Act, 1961. The Inter-Ministerial Board validates the innovative nature of the business for granting Income Tax Exemption. The recognized Startups that are granted an Inter-Ministerial Board Certificate are exempted from income-tax for a period of 3 consecutive years out of 7 years since incorporation.
ii. Income Tax Exemption under section 56(2)(viib) (Angel Tax) on Investments:
What is section 56(2)(viib) ?
here a company receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources.
What is relief to startups given?
To encourage capital investment in startups a relief has been provided to startups with respect to section 56(2) (viib). A DPIIT recognized startup is eligible for exemption from the provisions of section 56(2)(viib) of the Income Tax Act.
The Startup has to file a duly signed declaration in Form 2 to DPIIT to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act. Declaration needs to be digitally signed by a person who is authorized to verify the return of income under Section 140 of the Income tax Act e.g director of the company.
f. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The Credit Guarantee Fund Scheme for Micro and Small Enterprises was launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme.
g. Tax Exemptions on Capital Gains with an objective to promote investments into Startups by mobilizing the capital gains arising from sale of capital assets.
Requirements which are Waived Off
h. Startup India has changed the procedure of registration since its inception. It has exempted most of the previous requirements now. Many documents which were required to be filed previously are waived off. The list of documents which are not required to be filed at the time of the registration are-
• Letter of Recommendations
• Letter of funding
• Sanction Letters
• Udyog Aadhar
• MSME Certificate
• GST Certificate
FAQ on Startup Registration India
• Who can register with Startup India?
An entity incorporated as a Private Limited Company, Partnership Firm or a Limited Liability Partnership can register themselves under the Startup India scheme. The annual turnover of these business entities should not exceed 100 crores, and they should have been in existence for up to ten years from the date of its incorporation/ registration. Such an entity should be working towards innovation, development or improvement of products or services or processes.
• What are the benefits of signing up with Startup India?
There are a number of benefits Startups receive by the Startup India Scheme. Nevertheless, in order to avail these benefits, an entity is needed to be set up by the DPIIT as a Startup.
Startups are allowed to self certify their compliance for six labour laws and three environment laws. This is allowed for a total period of five years from the date of incorporation/registration of the entity. Startups are allowed a three-year tax exemption and the best intellectual property services and resources solely built to help Startups protect and commercialise their IPRs.
• What kind of business structure should I choose for my Startup?
The most preferred business structures for a Startup are Private Limited companies and LLPs. A Private Limited company is legally recognized and generally favoured by investors. However, it has stricter compliance and may have a higher cost of incorporation.
Whereas incorporation cost is lower for LLPs and they tend to have relaxed compliance in comparison to Pvt. Ltd. Co. In addition to that, LLPs have limited liabilities and are equally recognised by investors and all over the world.
• What can I do to attract investors for a Startup?
To attract investors, not only do you need a stellar product with a scalable model, but you also need visibility. Make sure that your product receives healthy engagement and traction. You’ll need to register your Startup on Startup India and proactively seek out investors. Make sure you are able to effectively communicate your business idea to the investor and the sustainability of your business model.
• Can a foreign company register under the Startup India hub?
Any entity that has at least one registered office in India can register itself on the hub, since the location preferences, for the time being, are only created for Indian states. However, soon the government hopes to start registrations for stakeholders from the global ecosystem too.
• What is the difference between an accelerator and an incubator?
Startup incubators are typically institutions that help entrepreneurs by developing their business, especially in the initial stages. Incubation function is usually carried out by institutions who have experience in the business and the tech world.
Startup accelerators support early-stage, growth-driven companies. These programmes usually have a time frame in which individual companies spend anywhere between a few weeks and a few months working with a group of mentors who are educated and may also provide financial help.
• For how long is a company recognised as a Startup?
Any business entity that has completed 10 years from the date of its incorporation/registration, and has exceeded the previous years turnover of 100croresshall stop to be a Startup on completion of 10 years from the date of its registration/incorporation.
• Can an existing entity register itself as a “Startup” on the Startup India Portal?
Yes, as per the law an existing entity can register itself as a Startup, provided that it meets the prescribed criteria for a Startup. They will also be able to avail various tax and IPR benefits that are available to Startups. The criteria are the same as those mentioned in the article above.
• How do I know my registration is complete?
Once the application is complete, and the Startup gets recognised, you will receive a system-generated certificate of recognition. You will be able to download this certificate from the Startup India portal.