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Embarking on the Journey of Entrepreneurship? Let’s learn some legal basics on recognition and compliances required for a Start-up.
In recent years, the Start-up ecosystem in India has witnessed remarkable growth, fuelled by a surge in entrepreneurial zeal and supportive government initiatives aimed at fostering innovation and economic development. However, amidst the excitement of launching a new venture, it is imperative for Start-ups to navigate the complex legal landscape effectively to establish themselves and thrive in the Indian market.
That being said, the Government of India to promote innovation, generation of employment and wealth creation started an initiative called as Start-up India Scheme under which recognised startups will get the following benefits:
A. Tax Exemptions: Upon recognition and registration under the Start-up India Scheme you can avail of Tax Exemption for 3 consecutive financial years out of the first 10 years since incorporation under Section 80 IAC. You may also apply for Angel Tax Exemption under Section 56 upon fulfilling certain conditions.
B. IPR Benefits: Startups are eligible for an 80% rebate in patent filing fees and a 50% rebate in trademark filing fees. Additionally, Startups are also provided the facility of expedited examination of patent applications to reduce the time taken in granting patents. You can also leverage benefits under the Scheme for "Startups Intellectual Property Protection" (SIPP) whereunder you get support on the registration of various Intellectual Property.
C. Labour and Environmental Law Compliance Benefits: Upon recognition under the Start-up India initiative, you can self-certify your compliance against various laws (6 Labour Laws and 3 Environmental Laws).
a. Labour Laws:
i. The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996;
ii. The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979;
iii. The Payment of Gratuity Act, 1972;
iv. The Contract Labour (Regulation and Abolition) Act, 1970;
v. The Employees Provident Funds and Miscellaneous Provisions Act, 1952;
vi. The Employees State Insurance Act, 1948;
b. Environmental Laws:
i. The Water (Prevention & Control of Pollution) Act, 1974;
ii. The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003;
iii. The Air (Prevention & Control of Pollution) Act, 1981;
Remember: 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 complaints of violation, filed in writing and approved by at least one level senior to the inspecting officer.
Whereas, in the case of environmental 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.
D. Faster Exit: The winding up of the corporation could be completed in just under 90 days under the Insolvency and Bankruptcy Code.
E. Startup India Seed Fund Scheme: Under this scheme, you get financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
F. Government Procurement Preferences: Recognized startups are eligible for preferential treatment in government procurement processes. Public sector enterprises and government departments are encouraged to procure goods and services from startups, providing lucrative business opportunities and revenue streams
G. Networking and Mentorship: Startup India fosters a vibrant ecosystem by facilitating networking opportunities, mentorship programs, and industry-specific workshops. Recognised Startups can benefit from the experience and guidance of seasoned entrepreneurs, mentors, and industry experts, accelerating their learning curve and growth trajectory.
H. Access to Incubators and Accelerators: Recognized startups gain access to government-affiliated incubators and accelerators, providing infrastructure, resources, mentorship, and networking opportunities. These support mechanisms help startups refine their business models, scale operations, and navigate challenges effectively.
I. International Exposure: Startups registered under the Startup India scheme may participate in international events, trade fairs, and exhibitions organized or supported by the government. This exposure facilitates market expansion, international collaborations, and access to global opportunities.
These benefits contribute significantly to the growth, sustainability, and success of startups in India’s vibrant entrepreneurial ecosystem. Moreover, women entrepreneurs receive additional benefits from other schemes as well.
Now, let’s delve into how an entity becomes a recognised Startup to get registered under the Startup India Scheme, and the steps you must follow:
Step 1: Incorporation/ Registration – It is the process of legally declaring a corporate entity distinct from its owners. This offers numerous benefits including liability protection, enhanced credibility, and potential tax advantages. In India, an entity can register themselves as a Private Limited Company or Partnership Firm or Limited Liability Partnership, under The Companies Act, 2013 or Indian Partnership Act, 1932, or Limited Liability Partnership Act, 2008 respectively.
Step 2: Recognition – After incorporation of your Start-up, you must file an application for legal recognition with Department for Promotion of Industry and Internal Trade (DPIIT) to be eligible for benefits under the Start-up India initiative. The application shall be made online over the Mobile app or portal set up by the DPIIT and shall be accompanied by:
A. A copy of Certificate of Incorporation or Registration with Pan card;
B. A strong write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation;
C. A copy of Memorandum of Association or LLP Agreement;
There are some important Pre-requisites for being recognized as a Start-Up
A. Your turnover should not be more than Rs. 100 Crores in any of the previous financial years.
B. Your entity will be considered as a Start-up only for 10 years from the date of Incorporation.
Remember:An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Start-up”.
After receiving all the documents, the DPIIT may recognise the entity as a Start-up or may reject the application by providing proper reasons.
Now that you have incorporated and got the recognition from DPIIT, let’s look at how your business can be protected.
Protecting Innovation: IP rights safeguard your startup’s unique ideas, inventions, and brand identity, granting a competitive edge. Here are key IP categories:
A. Patents: a legal right granted to an inventor for their new and useful product or process and granting exclusivity to make, use, and sell an invention for a limited period, incentivizing innovation.
B. Copyrights: Protect original creative works, including literary pieces, software code, and artistic expressions.
C. Trademarks: Registering your Trademark protects your distinctive symbols, names, logos, packaging or slogans that identify and distinguish your products or services.
D: Designs: Design is a type of intellectual property right (IPR) that protects the visual appearance of a product. It can be two-dimensional or three-dimensional and includes features like lines, patterns, shapes, and colors in a Product
Effectively managing your IP portfolio is vital. This involves not only acquiring rights but also actively monitoring for infringement and exploring strategies like licensing or collaboration to maximize their value.
Contractual Protection: Contracts form the backbone of any business relationship, outlining rights, responsibilities, and expectations for all parties involved. Common contracts for startups include:
A. Founders/Shareholders/ Partnership Agreement: It is essential for outlining ownership rights, responsibilities, decision-making process, and dispute resolution mechanisms among founders or partners, ensuring clarity and alignment from the inception of the venture.
B. Share Subscription Agreement: It facilitates the issuance and acquisition of shares, specifying terms, conditions, and obligations related to the purchase of shares, thereby formalising the relationship between the company and its shareholders.
C. Service Agreement: It establishes terms of engagement between a service provider and a client, defining services to be rendered, deliverables, payment terms, and other crucial aspects, ensuring mutual understanding and accountability.
D. Employee Agreement: It sets forth terms and conditions of employment, including roles, responsibilities, compensation, benefits, confidentiality clauses, and intellectual property rights, fostering clarity in the employer-employee relationship.
E. Non-Disclosure Agreement: It safeguards confidential information exchanged between parties, preventing unauthorized disclosure or use, and protecting intellectual property, trade secrets, and sensitive data.
F. Fin-tech Agreement: It governs relationships between financial technology firms and their clients or partners, delineating terms for the provision of fintech services, compliance requirements, data security measures, and liability provisions.
G. Consultancy Agreements: It defines the scope of services, expectations, fees, deliverables, and timelines between a consultant and a client, ensuring clarity and accountability in consulting engagements.
H. Software License Agreement: It specifies the terms of use, licensing rights, restrictions, and liabilities associated with the use of software, ensuring legal compliance and protection of intellectual property rights for software developers and users; etc.,
Obtaining Necessary Licenses and Approvals Identify the area of your business and obtain necessary licenses and permits that are applicable such as Shop and Establishment licenses, Food Safety licenses, Environmental clearances, and other sector-specific licenses.
As startups continue to drive economic growth and foster innovation in India, leveraging the support and resources available through initiatives like Startup India becomes increasingly crucial. By harnessing these opportunities and navigating the legal landscape effectively, entrepreneurs can turn their vision into reality, contributing to the vibrant entrepreneurial ecosystem of the country.
Thank you for taking the time to read our article. We appreciate your interest in iPact Legal and hope that the information provided has been helpful to you. Remember, we are here to support you every step of the way in simplifying the legal process for your startup journey. Please feel free to reach out to us at contact@ipactlegal.com with any queries or assistance you may need. We look forward to helping you achieve success in your endeavors.