Start-up generally means a new born firm /entity. However, Startup for the purposes of Indian Government schemes means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding Rs. 25 crore (around US$ 3.7million) in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
A business is covered under the definition only if it aims to develop and commercialize
- a new product or service or process;
- or a significantly improved existing product or service or process, that will create or add value for customers or workflow.
The mere act of developing
- products or services or processes which do not have potential for commercialization; or
- undifferentiated products or services or processes; or
- products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.
This definition of startup is given in the Startup India Action Plan launched by the Indian Government on 16 January 2016. However, to bring in uniformity, Government later notified a definition of start up on 17 February 2016. on lines similar to as espoused in the Start-Up India Action Plan.(The term “Start up” is neither defined in the Companies Act, 2013/1956 nor in the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.)
It is stipulated that such an entity is not formed by splitting up, or reconstruction, of a business already in existence.
The entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration.
Innovativeness of the entity to be considered as a start up would have to be recommended by a Business Incubator established in a post-graduate college in India or under any Government scheme for Innovation or by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network which is duly registered with Securities and Exchange Board of India [SEBI]. Alternatively, it should have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted. An Inter-Ministerial Board setup by Department of Industrial Policy and Promotion (DIPP) would validate the innovative nature of the business.
Startups are eligible for a series of benefits under Startup India Action Plan which in a nutshell may be seen here. More details may be seen from the Startup India portal http://startupindia.gov.in, and mobile app which were launched on 31 March 2016. A Startup would be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.
A Startup firm can take the form of a Private Limited Company (under The Companies Act, 2013) or a Registered Partnership Firm (under The Indian Partnership Act, 1932) or Limited Liability Partnership (under The Limited Liability Partnership Act, 2008).