Jul 292019

Start ups – regulatory environment

Meaning of term Start Up:

An entity shall be considered as start up upto 10 years (if it is incorporated as Private Limited company, Partnership Firm or LLP) from the date of its incorporation / registration:

  1. If its turnover for any of the financial years has not exceeded Rs 100 Crore and
  2. It is working toward innovation, development or improvement of products or processes or services or it is scalable business model with a high potential of employment generation or wealth creation.

Registration of start up:

  1. Make an online application over the mobile app or portal set up by DIPP.
  2. Application to be accompanied with
    1. Copy of certificate of incorporation (COI) or recognition
    2. Write up about the nature of business highlighting how it is working towards innovation etc

Relief and exemptions:

a) Income tax act:

Eligible start up carrying eligible business as explained under Explanation to Section 80-IC of income tax act may obtained certificate for the purpose of said section by making an application in prescribed Form – I to the inter Ministerial Board.

Obtaining license under section 80-IC of the income tax act allows assessee in computing total income a deduction of an amount equal to 100% of profits and gain derived from such business  for a consecutive three assessment years out of 7 years from the date of incorporation of start up.

Under section 56(2)(viiib) if a company receives any consideration for issue of shares which exceeds its FMV of such shares, such excess consideration is taxable in the hands of recipient. The start up are eligible for availing exemption from such provision if;-

  1. It is recognized by DPIIT and
  2. Aggregate amount of paid up capital and share premium of the start up after issue or proposed issue of shares does not exceeds Rs 25 crors.

b) Company Act:

The definition of start up is included in the act itself for the first time to give exemption to private company.

Various compliances exempted for start ups are as below:

  1. Cash flow statement (CFS) need not to be included in financial statement
  2. Annual return can be signed by company secretary and in case where there is non by the director of the company
  3. Prohibition related to acceptance of deposit from public are not applicable for start up
  4. Requirement as to board meetings etc are eased for start up
  5. Requirement as to minimum capital is done away
  6. Incorporation of company is simplified to a great extent
  7. Affixing common seal is made optional
  8. Strat up incorporated after 31st December 2017 need not to file INC-22A

c) Labour laws:

Start up are allowed to self certify various compliance of labor laws.

For first year of incorporation start up are exempted from any inspection from inspector. For 2nd year and 3rd year they can be inspected only after credible and verifiable information is available in writing.