- 1. Must be a Private Company, LLP or Partnership Firm
- 2. Must Not be Formed by Restructuring
- 3. Not More Than 5 Years Have Lapsed
- 4. Annual Turnover Has Never Exceeded 25 Crores
- 5. Entirely New Product or Service
- 6. Obtain Approval from DIPP for its Innovation
- Why the Eligibility Criteria Shattered Dreams of Many budding Entrepreneurs?
The enthusiasm amongst young entrepreneurs reached the peak when Mr. Modi had announced that the government would bring a scheme to promote startups in the country. A ray of hope arose among the young entrepreneurs inhibiting huge confidence in them and the students felt that now their career is secure with the government participation.
Later, thousands of dreams shattered when on 17 February 2016 the government published a notification identifying the criteria for eligibility of company as a startup. Why? This can be only understood after going through the complete eligibility criteria laid under the Startup India venture by the government. It shouldn’t be forgotten that no eligibility means no benefits.
Below is the complete guide for young businesses and entrepreneurs on the eligibility criteria for the Startup India policy:
1. Must be a Private Company, LLP or Partnership Firm
Any startup to be eligible for this scheme must be incorporated either as a Private Limited Company under Indian Companies Act, 2013 or as Limited Liability Partnership under Indian Limited Liability Partnership Act, 2008. The company can also be a Partnership firm. Nonetheless, the firm should be mandatorily be registered under the Indian Partnership Act, 1932.
2. Must Not be Formed by Restructuring
Principally the startup shouldn’t be formed by splitting or reconstructing an existing business in order to be eligible for the scheme.
3. Not More Than 5 Years Have Lapsed
Fascinatingly the Startup India Scheme aims not only at encouraging newly establishing startups but also the existing ones. Consequently, all the startups that have been incorporated or registered within past five years from the date the policy initiated, i.e. 16 February 2016.
In other words, all the incorporated or registered after 15 February 2011, are eligible to participate under the criteria of the scheme.
4. Annual Turnover Has Never Exceeded 25 Crores
The annual turnover as defined under the Companies Act, 2013 must be taken into consideration and that shouldn’t be more than 25 crores in any of the last 5 yrs since its incorporation or registration.
According to the Companies Act, 2013, turnover is defined as the aggregate value of the amount realized from the supply of goods or provisions of services in a particular financial year.
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5. Entirely New Product or Service
The most essential pre-condition of the entire Startup India Scheme is that the establishing a business must develop an entirely new product or service to be recognized as a startup.
This criterion has the following three conditions:
(a) The startup must be working towards – Innovation, Development, Deployment or Commercialisation of New products, processes or services, driven by either technology or intellectual property.
(b) The startup must aim to develop and commercialize – A new product or service or a significantly improved existing product or service that will create or add value to customers or workflow
(c) Startup must not be merely engaged in – Developing products or services which do not have the potential for commercialization, undifferentiated products or services, product or services or processes with no or limited incremental value for customers or workflow.
6. Obtain Approval from DIPP for its Innovation
A regulatory step to bring uniformity to help in identification of the innovative nature of the startups. It is mandatory for every startup to obtain an approval by submitting an application to the Inter-Ministerial Board (IBM) set up by the Department of Industrial Policy and Promotion (DIPP). The IBM consists of Joint SeJointy of DIPP, Representative of Department of Biotechnology, Representative of Department of Science & Technology.
Following supporting documents have been identified specifically:
- Recommendation from an incubator who is established in any Post Graduate College located in India
- from an incubator who is funded by the Government of India to promote innovation in regard to this scheme
- Recommendation from an incubator who is recognized by the Government of India.
- Letter of Equity Funding of at least 20% from an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network who is registered with the Securities Exchange Board of India (SEBI). Any of these funds shouldn’t be listed in the negative funds issued by DIPP in future.
- Letter of funding from Central Government/State Government as a part of any policy that promotes innovation.
- A filed and published Patent in the areas affiliated with the nature of the business that is being promoted.
Why the Eligibility Criteria Shattered Dreams of Many budding Entrepreneurs?
The Startup India Scheme has been promoted well by PM Modi announcing the visions of having a startup in each district and every block of the nation. The government intelligently publicized the exemptions and benefits granted under the venture but it failed to highlight that the scheme covers only the startups that are innovation in nature and obtain certain recommendations.
Such circumstances have excluded a large portion of the budding entrepreneurs from this initiative who were waiting very enthusiastically for the scheme to be launched.
Thus the dreams of the young stakeholders became a reality or not is still a major question but the Modi Government surely managed to achieve their political propaganda by successfully influencing people that they are working towards the promotion of the startup culture in the country. However, the reality still stands far away from the announcements made.
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