Startup India Scheme is a flagship initiative of Government of India. The primary objective of this scheme is to build a strong eco-system to nurture innovation and empower Startups across India for job creation, entrepreneurship and economic development. Startup India is a revolutionary scheme that proposes to help the budding entrepreneurs who wish to start their own businesses. These new generation entrepreneurs have ideas and capabilities and the Government aspires to give them support to make sure they can implement their ideas and grow.
The Startup India Scheme provides for the initial registration of a Startup who then, shall make a detailed application to get recognized as a Startup.
Eligibility to be registered & recognized as a Startup:
A private limited company or a registered partnership firm or a limited liability partnership (LLP) are eligible to be registered and recognized as a Startup if it fulfils all of the following criteria:
- It is not older than 10 years from the date of incorporation/registration;
- It’s annual turnover does not exceed Rs. 100 crore in any of the financial year since incorporation/ registration;
- It is working towards innovation, development, deployment 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.
It is important to note that the entity proposing to get registered as Startup should not have been formed by splitting up or reconstruction of a business already in existence.
A Startup has to undergo a detailed scrutiny in case it proposes to avail the benefits under the Income Tax Act.
Benefits to a recognized Startup:
A recognized Startup is eligible to get the following benefits (except IT benefits) so that an entrepreneur can focus on their core business and have minimal regulatory compliance burden.
Benefits under the Companies Act, 2013:
Presently, a recognized Startup Company shall have the following exemptions from the compliances under the Companies Act, 2013:
- Cash flow statement: A Startup Company is exempted from preparing a Cash Flow Statement.
- Quarterly board meetings: A Startup Company is allowed to hold two board meetings in a calendar year, i.e. once in six months. The gap between two consecutive board meetings must be at least 90 days.
- Corporate insolvency process: A Startup Company who is legally identified as corporate debtor can avail of the fast track corporate insolvency process. The fast track period is 90 days from the commencement of the insolvency process, as against 180 days in normal cases.
- Annual return: The Annual Return of a Startup Company can be signed by the Director of the Company, in case the Company does not have a Company Secretary.
- Sweat equity shares: Startup Companies are allowed to issue sweat equity shares not exceeding 50% of its paid up capital upto 5 years from the date of its incorporation. However, the yearly limits of 15% of paid up capital or Rs.5 crores whichever is higher has to be complied with.
- Issue of Employee Stock Options: Startup Companies are permitted to issue ESOPs up to 10 years from the date of its incorporation to its employees who are a promoter or a person belonging to the promoter group or a director who either himself or through his relative or through any body-corporate, directly or indirectly, holds more than 10 % of the outstanding equity shares of the company.
- Acceptance of Convertible Notes: An amount of Rs. 25 lakh or more received by a Startup Company for 5 years form the date of its incorporation shall not be treated as deposit if the person is giving the money in a single tranche in the form of convertible note. A convertible note here means an instrument either converted into equity or repaid within five years from the date of funding.
- Acceptance of deposits: Startups are allowed for five years from the date of its incorporation to receive money from it’s Shareholders without any limit without complying with provision of section 73(2)(a) to (e) of the Companies Act, 2013. However, it will be considered as deposit and the Company has file the details of monies so accepted to MCA in Form DPT-3.
Benefits under FEMA:
- Issue of Convertible Notes by a Startup: A person resident outside India is permitted to purchase convertible notes issued by a Startup for an amount of Rupees Twenty-five lakh or more in a single tranche. A NRI/OCI may also acquire such convertible notes on non-repatriation basis. Further, a person resident outside India may acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines as prescribed for capital instruments.
- Investment by Foreign Venture Capital Investor: A Foreign Venture Capital Investor (FVCI) is permitted to purchase securities issued by a Startup irrespective of the sector in which the Startup is engaged.
- ECB facility for Startups: A Startup is permitted to raise ECB in form of loans or non-convertible, optionally convertible or partially convertible Preference Shares under the automatic route with a minimum average maturity period of 3 years from a Recognized lender upto USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both.
Benefits under other legislations:
Startups are allowed to self-certify compliances for 6 Labour Laws and 3 Environmental Laws through a simple online procedure. 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.
Benefits for Patent Application & IPR Protection:
The scheme for Startup Intellectual Property Protection (SIPP) facilitates the filing of Patents, Trademarks and Designs by innovative Startups. Various features of this scheme are as follows:
- The Central Government bears the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.
- Startups shall be provided 80% rebate in filing of patents vis-à-vis other Companies
- The applications from the Startups are Fast-tracked.
- A panel of facilitators assists in the filing of IPR applications.
Benefits under IBC:
Startups may be wound up within a period of 90 days from making of an application for winding up on a fast track basis.
Fund of Funds for Startups:
In order to provide equity funding support for development and growth of innovation driven Startup enterprises, the Government has set aside a corpus fund of INR 10,000 crores which is managed by SIDBI.
Relaxation in public procurement norms for Startups:
In order to promote Startups, the Government has exempted Startups in the manufacturing sector from the criteria of “prior experience/ turnover” without any compromise on the stated quality standards or technical parameters. The Startups will have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India. Startups have also been exempted from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders.