Eurion Constellation Insights: Startup India Action Plan: Eligibility

It may be too early to comment upon how Startup India Action Plan will be put into practice - administratively and legally – but it is certainly a bold step forward in developing entrepreneurial initiative in India. That said, it is not free from contentious issues. With the Plan clearly underlining the Government’s inclination towards promoting technology and IP, other businesses may feel left out. There can be new or improved offerings, particularly in the services sector, that are not essentially technologically backed. Perhaps the Budget will throw more light on the subject of inclusivity. It will be an imperative to ensure that the proposed Inter-Ministerial Board does not become an enabler for red-tape the Government is so keen to curb. Broadly, eligible enterprises should meet the following conditions:

Constitution

Private Limited Company (under The Companies Act, 2013)
Registered Partnership Firm (under The Indian Partnership Act, 1932)
Limited Liability Partnership (under The Limited Liability Partnership Act, 2008)

Existence

According to the Plan, the entity should have been incorporated or registered not prior to 5 years. Such entity should not have been formed by splitting up, or reconstruction, of a business already in existence. Therefore, the organization must be an entirely new constitution.

Revenue Size

The annual turnover should have been INR 25 Cr or less in any of the previous financial years. The definition of “turnover” is as provided by section 2(91) of the Companies Act 2013.

[“Turnover” means the aggregate value of the realization of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year.]

Type of Business

The Startup India Action Plan has a definite focus on technology and intellectual property driven business models. An eligible concern will be one working towards

innovation
development
deployment, or
commercialization

of new products, processes, or services. At the same time, it is provided that a significantly improved existing product or service or process can also be included. The qualifier for both categories is the ability to “create or add value for customers or workflow.” Therefore, ideas that lack sufficient potential for commercialization, differentiation (from existing products/service in the market), or value addition will not qualify.

Recommendation

One of the key eligibility criteria is a recommendation or funding as specified below:

Recommendation about the innovative nature from an incubator established in a post-graduate college in India. This recommendation shall be provided in a format specified by Department of Industrial Policy and Promotion (DIPP)
Recommendation from an incubator recognized by the Government. The format will be specified by DIPP
Support from an incubator funded by the Government under a scheme to promote innovation
Patent granted by the Indian Patent and Trademark Office in areas affiliated with the primary nature of business
Funding from an

Incubation Fund
Angel Fund
Private Equity Fund
Accelerator
Angel Network

registered with SEBI that endorses innovative nature of the business

Funding form Government under a scheme to promote innovation

DIPP may publish a negative list containing ineligible funds.

Approval

Based on the recommendation and eligibility of startups, an Inter-Ministerial Board (established by DIPP) shall validate the innovative nature. This will be a prerequisite for availing any tax benefits under the Plan.

Eurion Constellation supports startups at various stages through a host of services, including registrations, planning & strategy, funding, and legal consulting. Please visit our website for details about our full line of services or write to us.