Startup registration in India
Have you ever dreamt of starting your own business? If yes, then congratulations on taking the first step towards entrepreneurship. Starting a business can be both exciting and overwhelming at the same time. However, before diving deep into the game, it is important to understand all the legal proceedings that need to be taken care of. In India, one of the crucial steps towards establishing your startup is its registration. Startup registration serves as important documentation for the legal recognition of your business. In this blog, we will discuss everything you need to know about startup registration in India. So, let’s get started!
1. Importance of Startup Registration in India
Startup registration in India has become increasingly popular in recent years, as more and more entrepreneurs recognize the benefits of starting a business in the country. With the government’s Startup India initiative, the focus on innovation and technology has resulted in a strong ecosystem that promotes the overall growth of startups. By registering as a startup, entrepreneurs can take advantage of a range of benefits, including tax exemptions, simplified compliance processes, and access to funding opportunities. Startup registration in India has become an essential step for entrepreneurs who want to establish and grow a successful business.
To be eligible for registration under Startup India, certain conditions must be met. The entity must be incorporated or registered in India up to 10 years from its date of incorporation, and can be a private limited company, partnership firm, or limited liability partnership. The entity must have an annual turnover not exceeding Rs. 100 crore for any financial year since incorporation/registration, and must be working towards innovation development or improvement of products, processes, or services. By meeting these conditions, entrepreneurs can take advantage of the benefits provided under Startup India.
One of the most significant benefits of Startup India registration is tax exemption for three years. Startups that are recognised under the initiative can avail of this exemption, as well as an exemption on incoming funds from incubators and angel investors. Simplified compliance processes are also a significant benefit, as startups are allowed to self-certify compliance with nine labour and three environmental laws through the Startup mobile app. This saves time and money, allowing entrepreneurs to focus on growing their businesses.
Moreover, registering under Startup India allows startups to participate in two annual fests for networking opportunities, explore government projects that are underpinned by growth potential and monetary incentives, and access high-quality intellectual property right services, including patent facilitators with an 80% reduction in filing costs. Startups can also wind up their business within three months, provided they hire insolvency experts to liquidate assets. The Indian government has allocated Rs. 10000 Crore for the development of startups in the country, rendering equity funding support for innovation-driven enterprises.
Overall, registering under Startup India is an essential step for any entrepreneur who wants to establish and grow their business in India. The benefits of startup registration in India, including tax exemption, simplified compliance processes, access to funding opportunities, and networking opportunities, are immense and can give startups the edge they need to succeed in a competitive market.
2. Steps to Incorporate a Startup in India
Startups are becoming increasingly popular in India, especially with the support of the government’s Startup India initiative. This program aims to recognize and promote new businesses that provide innovative products or services to solve society’s problems. For those interested in starting a new business, the first step is to incorporate it as either a private limited company or a limited liability partnership. This involves submitting a registration application and obtaining a Certificate of Incorporation/Partnership registration from the Registrar of Companies or Registrar of Firms in their region. Documents and fees must also be submitted.
Next, the new business must register with Startup India online. By creating a profile, startups can apply for acceleration, incubator/mentorship programs, and other challenges on the website. They also gain access to resources like Learning and Development Programs, Government Schemes, State Polices for Startups, and pro-bono services. Additionally, the Department for Promotion of Industry and Internal Trade (DPIIT) Recognition is available to startups with benefits such as access to quality intellectual property services, relaxation in public procurement norms, tax exemption, and quick winding of the company.
To apply for DPIIT Recognition, startups need to log in with their registered profile credentials and click on the “Apply for DPIIT Recognition” option on the website. They will need to fill up a Startup Recognition Form with required details such as entity details, full office address, authorized representative details, director/partner details, startup activities, and proof of concept like a pitch deck/website link/video (in case of validation/early traction/scaling stage startup). Upon submitting the form, startups receive a recognition number that is used to get the certificate of recognition after examination.
3. Registering with Startup India Initiative
Starting a business is never an easy task; however, with the help of the Startup India Initiative, entrepreneurs can now register their startups quickly and efficiently. To avail of the benefits that come with registering under the Startup India Initiative, a business must first meet specific eligibility criteria. It must have been in existence and operations for no more than ten years from its date of incorporation. The entity should be registered as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership, and its annual turnover should not exceed Rs. 100 crore. Additionally, it should work towards developing or improving a product, process, or service and have a scalable business model with a high potential for wealth and employment generation.
Under the Startup India Initiative, startups can self-certify compliance with six labor laws and three environmental laws, reducing regulatory burden and compliance costs. Startups with DPIIT recognition can enjoy benefits such as an 80% rebate on filing patents, fast-tracking of patent applications, and access to a panel of facilitators to assist with filing IP applications. The government further aids with the cost of facilitators and regulatory fees, and startups can focus on their core business and innovation.
To register with the Startup India Initiative, the business must first incorporate as a Private Limited Company, Limited Liability Partnership, or Registered Partnership Firm. The application for registration is similar to that of any business registration, and the certificate of incorporation/registration must be obtained. Next, the business can register with Startup India. The process is simple and online, and upon completion, startups can apply for various acceleration incubator/mentorship programs and access essential resources such as government schemes and policies. They can also take part in challenges on the website while getting access to pro-bono services. DPIIT recognition can be availed by logging in with the startup’s registered profile (account) credentials on the Startup India website and clicking on the ‘Apply for DPIIT Recognition’ option under the ‘Recognition’ tab. The website will redirect the company or LLP to the National Startup Awards Website, where they can register their business.
4. Eligibility Criteria for DPIIT Certificate of Recognition
To avail the benefits of Startup India initiative, a company needs to be recognized as a Startup by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India initiative. To be eligible for the DPIIT Certificate of Recognition for Startups, the entity must meet certain eligibility criteria. The firm must be incorporated as a Private Limited Company, a Limited Liability Partnership (LLP), or a Registered Partnership Firm. Additionally, the period of existence and operations of the company should not exceed ten years from the date of formation. The firm must also have an annual turnover of less than Rs. 100 crore for any of the fiscal years since its federation and should be working towards development or improvement of a product process or service with high potential for wealth and employment creation. An entity formed by splitting up or recreating an already existing business shall not be considered a Startup.
Once recognized by DPIIT, a Startup gets numerous benefits such as exemption from submitting Earnest Money Deposit Exemption, exemption from prior experience/turnover, and the opportunity to list the product on Government e-Marketplace. The DPIIT Certificate of Recognition enables startups to apply for tax exemption under Section 80 IAC of the Income Tax Act, and the startups can also avail Angel Tax Exemption. DPIIT recognized startups are required to pay only 80% of the fees on copyrights and design, and the fast-tracking of a patent application will be available for startups. Moreover, the startups are eligible for funding of Rs.10,000 crore from Alternative Investment Funds over four years, and they can also avail of Rs. 2,000 crore Credit Guarantee fund through the National Credit Guarantee Trust Company or SIDBI over four years. Finally, the startup can apply to wind-up the company within 90 days of applying for insolvency.
5. Applying for DPIIT Certificate of Recognition
Startup registration in India is a crucial step towards accessing various benefits and assistance programs. One such recognition is the DPIIT Certificate of Recognition for Startups. This certification is provided by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India initiative. The startup must meet the eligibility criteria to avail the certification, such as being a Private Limited Company, Limited Liability Partnership, or a Registered Partnership Firm, and not exceeding ten years of existence and operations.
The DPIIT Certificate of Recognition allows startups to avail benefits such as fast-tracking of intellectual property rights and listing the product on Government e-Marketplace. Additionally, employment generation and wealth creation should be the main focus of the startup. Startups recognized by the DPIIT can self-certify compliance under three Environmental Laws and six Labour Laws. Furthermore, they can apply for tax exemption under section 80 IAC of the Income Tax Act and Angel Tax Exemption.
To obtain the DPIIT Certificate of Recognition for Startups, the startup must submit certain documents such as a certificate of incorporation or registration of entity, proof of funding, and document of awards or recognition received by the entity. It should also provide a brief description of the nature of the business and demonstrate the scalability in terms of employment generation or wealth creation. Additionally, a support letter from a central or state government authority or any recognized incubator can be submitted, along with the document for funding.
It is important to note that the documents uploaded should not be forged or else the applicant will be liable to pay a heavy penalty. Moreover, the startup should not have been incorporated by splitting up or recreating an already existing entity. The scalability of the business model and potential for the creation of wealth and employment are crucial factors that will be assessed by the DPIIT before granting the certificate.
In conclusion, obtaining the DPIIT Certificate of Recognition for Startups can benefit a startup in numerous ways and provide them with the recognition needed to access various benefits and assistance programs. Therefore, it is crucial for startups to continuously work towards innovation and development and be eligible for this certification.
6. Benefits of DPIIT Recognition for Startups
Registering as a startup with the Department for Promotion of Internal Trade and Industrial Policy (DPIIT) offers a range of benefits for entrepreneurs. Six benefits, in particular, stand out: exemption under Section 56(2)(vii)(b) of the Income Tax Act 1961, exemption from payment of income tax for three consecutive years, exemption of long-term capital gains tax, self-certification under labor and employment laws, fast-tracking of patent applications, and panel of facilitators to assist in filing of IP applications.
One significant benefit of registration with DPIIT is exemption under Section 56(2)(vii)(b) of the Income Tax Act, which allows for levy of no tax on excess consideration received for shares issued. This exemption is particularly beneficial for startups seeking angel investors during their early stages and ensures that they don’t pay exorbitant levies.
A second significant benefit is exemption from payment of income tax for three consecutive years. Startups can opt for this if their total turnover in the relevant assessment year is not over Rs 25 crore.
Registered startups can also seek exemption of long-term capital gains tax, which is automatically levied when an individual sells a residential property. This exemption is possible only if the company uses the funds to purchase assets and meets certain criteria.
Thirdly, startups can self-certify compliance under six labor laws and three environment laws. This allows startups to focus on their core business and keep their compliance costs low.
Fast tracking of patent applications is also possible for registered startups. This reduces the cost and time taken for a startup to acquire a patent making it financially viable for them to protect their innovations and encouraging them to innovate further.
Lastly, a panel of facilitators can assist startups in filing IP applications, and the government bears their cost. Startups benefit from an 80% rebate on filing of patents vis-a-vis other companies, and this helps them cut costs in their formative years.
7. Tax Exemption and Angel Tax Exemption
There are numerous benefits derived from registering a startup in India, including tax exemption and angel tax exemption. For instance, startups that are registered with the Department for Promotion of Industry and Internal Trade (DPIIT) are eligible for income tax exemption for three consecutive financial years. This benefit is available if their total turnover doesn’t cross 25 Crores. Essentially, this means that a successfully registered startup will not be taxed by the government for a particular period.
Additionally, startups can now enjoy ‘angel tax’ exemption. This benefit is aimed at helping startups access capital without worrying about the government levying taxes on the invested capital. Prior to this exemption, the income tax department could question the valuations of the startups and the share premium paid by angel investors that exceeded the face value of the shares. Angel tax exemption has helped stimulate investment and growth of Indian startups.
Moreover, to become eligible for exemptions, startups must meet certain criteria. For example, they must have been incorporated as a private company or a limited liability partnership (LLP). Another criterion is that the entity must have been registered with DPIIT. The exemption will be granted only to the holding entity of the group of companies, which means that the operating entity(ies) will not be eligible to receive such exemptions.
In conclusion, tax exemption and angel tax exemption are vital incentives to attract investment for startups in India. These benefits, coupled with the country’s favorable business environment, have made India one of the most attractive destinations for startups worldwide. However, startups must ensure that they qualify for the exemptions, or they will miss out on these benefits.
8. Funding Opportunities for Startups
Startup funding is essential for starting and running a business. Startups may require funding for product development, manufacturing, expansion, sales and marketing, office spaces, and inventory. While some startups are funded by their founders, most of them raise funding, especially when they grow larger and scale their operations. Founders should have a detailed financial and business plan before approaching investors.
There are different types of funding available for startups, such as equity financing, debt financing, and grants. Equity financing involves selling a portion of a company’s equity in exchange for capital, while debt financing involves borrowing money and paying it back with interest. Grants are awards given by an entity to a company to facilitate a goal or incentivize performance, and there is no component of repayment of the invested funds.
Startups have to assess the pros and cons of raising funds from different sources. Equity investors usually prefer involvement in the decision-making process, while debt fund has very little involvement. Angel investors usually invest in startups at an early stage, and the platform receives equity ownership in the startup and benefits if it succeeds.
Venture capital funds provide large amounts of capital to startups in exchange for equity or equity-linked instruments, and they exit when the startup releases an IPO or is acquired. Corporate venture capital refers to the investment made by large organizations directly into a private enterprise or a startup. Non-banking financial companies provide an alternate form of funding to VC-backed startups under a hybrid scheme known as venture debt funds.
Accelerators and incubators help startups grow by providing funding, assistance, mentors, and a platform to connect with investors and other startups. Revenue-based financing is becoming quite popular among stakeholders, and India has seen the emergence of various revenue-based lending organizations. The Government of India also provides loan schemes, grants, and other funding programs for startups.
9. Networking Opportunities for Entrepreneurs
Startup registration in India has become easier with the introduction of the Startup India program. This program has been instrumental in promoting entrepreneurial culture while creating job opportunities and wealth. One of the benefits of this program is the networking opportunities it provides to entrepreneurs. Connecting with other entrepreneurs and industry experts is essential for startups as it allows them to learn from others’ experiences and create meaningful partnerships. Startups can network and attend events hosted by the government and private organizations to showcase their products and services, gain funding and investors, and create lasting relationships with like-minded individuals. Networking is crucial for startups looking to grow and scale their businesses, and the Startup India program provides ample opportunities for entrepreneurs to connect with others in their industry.
The Startup India program provides various benefits to startups that meet the eligibility criteria. Startups can enjoy a tax holiday for the first three years of operation or until they hit a certain threshold, allowing them to reinvest their revenues into their business. Additionally, startups can self-certify compliance with nine labour and environmental laws, reducing regulatory liabilities and making it easier for them to focus on their core business activities. Another benefit of this program is relaxed norms for public procurement, making it easier for startups to participate in public procurement processes. These benefits, along with other initiatives, make the Startup India program a valuable resource for startups looking to establish themselves in the Indian market.
Networking opportunities are a crucial part of the program, and entrepreneurs can take advantage of them by attending events hosted by the government and private organizations. These events facilitate networking by bringing together startups, mentors, investors, and other industry experts under one roof. Startups can benefit from meeting and engaging with potential investors, business partners, and customers at these events. They can also receive feedback and insights on their products and services from experienced individuals, helping them refine their offerings and improve their market prospects. Overall, networking opportunities under the Startup India program can prove to be beneficial for startups looking to scale and establish themselves in the Indian market.
In conclusion, the Startup India program has been successful in promoting the entrepreneurial culture in India while creating job opportunities and promoting indigenous industries. Entrepreneurs can take advantage of the various benefits provided by this program, including tax exemptions, relaxed public procurement norms, and self-certification for compliance with labour and environmental laws. Additionally, networking opportunities under this program can prove to be beneficial for startups looking to connect with like-minded individuals, investors, and potential customers. With these benefits, it is no wonder that the Startup India program has seen unprecedented growth in the entrepreneurial spirit among the youth of the country.
10. Simplified Compliance and Regulatory Environment
Startups in India can avail of the benefits under the Startup India initiative by registering their company. The Startup India scheme intends to foster innovation, growth, and employment opportunities in the country by providing a conducive environment for startups to thrive. To register a startup, there are ten documents required, including a recommendation letter from an incubator and incorporation certificate/PAN number verification/partnership registration, among others. The eligibility criteria include being a private limited company, not having a turnover exceeding INR 25 crores, and being in operation for five years or less or being a completely new company. It also requires approval from the Department of Industrial Policy and Promotion and having creative and customer-centric products or services.
Once a company is registered, it can be recognized as a startup by the DPIIT or the Department of Promotion of Industry and Internal Trade. DPIIT-recognized startups can access several benefits, such as tax benefits, easier compliance, fast-tracking of intellectual property rights, and more. The DPIIT startup recognition requires the company to meet specific criteria, such as being incorporated as a private limited company, having an annual turnover not exceeding INR 100 crore, among others. The startup can self-certify its compliance with six labor laws and three environmental laws, and inspections will not be initiated for five years.
Further, DPIIT-recognized startups can fast-track their patent applications, and the government bears the facilitation cost for filing any number of patents, trademarks, or designs. Startups also get an 80% rebate when filing for patents. This helps startups to acquire patents without incurring excessive costs and reducing the time taken to acquire patents, protecting their innovative ideas. The Startup India initiative also aims to provide startups with a regulatory and compliance environment that is simplified and friendly, allowing them to focus on their core business and keep compliance costs low.