Start up India – Legal aspects

1.1 INTRODUCTION

The Central government took the initiative to promote the start up organizations by way of relaxing certain regulatory requirements, providing tax exemptions. The objective of this initiate is to promote the upcoming entrepreneurs who are mainly in transition stage of converting their research thoughts into business model.

In this article, I would be discussing the legal requirements of startups along with procedural aspects.

1.2 WHAT IS START UP

An entity shall be considered as a ‘startup’-

a. Up to five years from the date of its incorporation/registration,
b. If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
c. It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;

An entity is considered to be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property 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.

Any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’

1.3 TYPES OF ENTITIES COVERED

i. a Private limited company (as defined in the Companies Act, 2013), or

ii. a Registered partnership firm (registered under section 59 of the Partnership Act, 1932) or

iii. a limited liability partnership (under the Limited Liability Partnership Act, 2002).

2. PROCEDURES
2.1 DOCUMENTS FOR RECOGNITION

The process of recognition as a ‘startup’ shall be through mobile app/portal of the Department of Industrial Policy and Promotion. Startups will be required to submit a simple application with any of following documents:

a) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a postgraduate college in India; or

b) a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or

c) a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India; or

d) a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit; or

e) a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

f) a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

Department of Industrial Policy and Promotion may, until such mobile app/portal is launched make alternative arrangement of recognizing a ‘startup’. Once such application with relevant document is uploaded a real-time recognition number will be issued to the startup.

If on subsequent verification, such recognition is found to be obtained without uploading the document or uploading any other document or a forged document, the concerned applicant shall be liable to a fine which shall be fifty per cent of paid up capital of the startup but shall not be less than Rupees 25,000.

2.2 SELF CERTIFICATION

Start-ups, as defined by DIPP, may be allowed to self-certify compliance with the Labour Laws.
The Labour Laws to be covered under this are:

– The Industrial Disputes Act, 1947
– The Trade Unions Act, 1926
– The Building and Other Constructions Workers’ (Regulation of Employment and Conditions of Service) Act, 1996
– The Industrial Employment (Standing Orders) Act, 1946
– The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
– The Payment of Gratuity Act, 1972
– The Contract Labour (Regulation and Abolition) Act, 1970
– The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
– The Employees’ State Insurance Act, 1948

Out of the 9 Central Labour Acts above, first 7 Acts are implemented both by State Government (State sphere) and Central Government (Central sphere). Last two (EPF and ESI Act) are mainly implemented by Central Government.