A startup is a young company that is just beginning to develop. Startups are usually small and initially financed and operated by a handful of founders or one individual. These companies offer a product or service that is not currently being offered elsewhere in the market, or that the founders believe is being offered in an inferior manner.
In the early stages, startup companies’ expenses tend to exceed their revenues as they work on developing, testing and marketing their idea. As such, they often require financing. Startups may be funded by traditional small business loans from banks or credit unions, by government-sponsored Small Business Administration loans from local banks, or by grants from nonprofit organizations and state governments. Incubators can provide startups with both capital and advice, while friends and family may also provide loans or gifts. A startup that can prove its potential may be able to attract venture capital financing in exchange for giving up some control and a percentage of company ownership.
Because startups don’t have much history and may have yet to turn a profit, investing in them is considered high risk. Here are some ways that potential lenders and investors can value a startup in the absence of revenues:
1. The cost to duplicate approach looks at the expenses the company has incurred to create its product or service, such as research and development and the purchase of physical assets. However, this valuation method doesn’t consider the company’s future potential or intangible assets.
2. The market multiple approaches look at what similar companies have recently been acquired for. The nature of a startup often means that there are no comparable companies, however. Even when there are comparable company sales, their terms may not be publicly available.
3. The discounted cash flow approach looks at the company’s expected future cash flow. This approach is highly subjective.
4. The development stage approach assigns a higher range of potential values to companies that are further developed. For example, a company that has a clear path to profitability would have a higher valuation than one that merely has an interesting idea.
Because startups have a high failure rate, would-be investors should consider not just the idea, but the management team’s experience. Potential investors should also not invest money that they cannot afford to lose in startups. Finally, investors should develop an exit strategy, because until they sell, any profits exist only on paper.
A startup company (startup or start-up) is an entrepreneurial venture typically describing newly emerged, fast-growing business. Definition of the startup usually refers to accompany, a partnership or an organization designed to rapidly develop scalable business model.Often, startup companies deploy advanced technologies, such as Internet, communication, robotics, etc. These companies are generally involved in the design and implementation of the innovative processes of the development, validation and research for target markets.The term became internationally widespread during the dot-com bubble when a great number of dot-com companies were founded.
Startups in India
The objective is that India must become a nation of job creators instead of being a nation of job seekers. The Prime Minister of India will formally launch the initiative on January 16, 2016 from VigyanBhawan, New Delhi. The event will be attended by a vast number of young Indian entrepreneurs (over 2000) who have embarked on the journey of entrepreneurship through Start-ups.
As a key component of this “Start-up India” launch, Government of India is organizing a global workshop on “Innovation and Start-ups”on January 16, 2016. Shri NarendraModi, Prime Minister of India will be the Chief Guest on the occasion. This workshop aims to provide a platform to bring together all stakeholders, stimulate dialogue on key challenges that the Indian innovation ecosystem currently faces, and provide the potential solutions to address them.
Fostering a fruitful culture of innovation in the country is a long and important journey. This initiative will go a significant way in reiterating Government of India’s commitment to making India the hub of innovation, design and Start-ups.
Are there financial benefits?
In patent costs, the startups can claim an 80% rebate. That means, if a startup applies for a patent, the government will fund the defence of the patent, and give rebate of 80% in the fees. The government will also pay fees of the facilitator for helping the startup obtain the patent. Faster patent registration and protection for Intellectual Property Rights (IPRs) is provided under the Scheme. Patent filing procedures to be simplified. Significant reduction in fees for filing Patents.
What are the advantages for startups regarding registration?
The government is launching a mobile app on 1 April 2016 and a portal that will allow companies to register in a day. In addition, there would be a single point of contact for Start-up India hub. In addition, there will be single window clearance for clearances, approvals, and registrations.
What is the government’s role in boosting start ups?
The Ministry of Human Resource Development (HRD) and the Department of Science and Technology have agreed to partner in an initiative to set up over 75 startup support hubs in the National Institutes of Technology (NITs), the Indian Institutes of Information Technology (IIITs), the Indian Institutes of Science Education and Research (IISERs) and National Institutes of Pharmaceutical Education and Research (NIPERs).
What are the special benefits for startups in public procurement?
Startups in the manufacturing sector are exempted from the criteria of prior ‘experience/ turnover’ without any relaxation in quality standards or technical parameters in public procurement (by government).
How much funding is available for this scheme?
Rs10,000-crore fund for new enterprises, equal opportunity in government procurement, a Rs500-crore credit guarantee scheme and easier exit norms. Japanese Softbank, which had already invested $ 2 billion in Indian startups, has pledged total investments of $ 10 billion.
What are benefits under the provision on Income Tax?
Under the Scheme, Income Tax exemption is available for first three years. However, the startup will be eligible for tax benefits only after obtaining certificate from the Inter-Ministerial Board, setup for this purpose.
Is there any exemption in capital gains tax?
Yes. If the money is invested in fund of funds recognised by the government, the investor can claim capital gains tax exemptions. In addition, existing capital gain tax exemption for investment in newly formed MSMEs by individuals shall be extended to all startups.
What is the eligibility for startups?
To become eligible as a startup and get a green signal from the Inter-Ministerial Board, the entity should be the one which aims to develop and commercialise, 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. Products, services or process, which do not have potential for commercialisation or is undifferentiated or have no or limited incremental value will not be considered under the Scheme. To be considered as eligible as startup the entity, should be supported by :
1.a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India
2.an incubator, which is funded (in relation to the project) from Government of India as part of any specified scheme to promote innovation
3.a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by Government of India or
4.be funded by an Incubation Fund/ Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business or
5.be funded by Government of India as part of any specified scheme to promote innovation or
6.have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted
Types of Firms
1. Sole Proprietorship Firm – Sole Proprietorship Firm is one of the best legal entity in India. Even more than 40% Legal Entities are Registered under the Sole Proprietorship firm due to its legal compliance and Taxation part.It is a best and simple way to start a business. It is a simple firm so just like your personal firm. Your liability is the unlimited but best thing less compliance and also lower cost of formation.
Minimum Requirements:-
-Require Just Only One Person with ID and Address Proof + Business Place Address Proof. (Tip: you can use your home or residential address for the registration just in case of the service based business)
Registration Required :-
a) if you are service provider take service tax registration
b) if you are selling goods then take VAT/CST registration (Its a very expensive thing in some state so just checkout your state rules for this)
or if you have a physical shop then you can take Shop Establishment Certificate.
Steps to Register:-
a) Take Service Tax or VAT
b) Open a Current Bank Account on the basis of VAT or Service Tax Certificate and Start the Business.
Advantages in Proprietorship Firm :-
a) Less Compliance like you have to just maintain your books of accounts and file a income tax return annual and if you take service tax or vat then you have to file that returns also.
Disadvantages in Firm :-
a) your liability is the unlimited.
b) Not Trustworthy for getting funding and you cannot enjoy company features even your brand is not secure like anyone can register a private limited company on same name so suggest you after the registration apply for the Trademark Registration
Costing Analysis for Registration :-
a) Service Tax is done by Legal Experts or CA’s or Lawyers or Freelancer nearby 2000/- to 5000/- Rupees very professional to professional Even you can done it Online Service Tax Registration in India at your fingertips
b) VAT is done by legal experts nearby 3500/- to 6000/- as Professional Fee but if we talk about govt charges then its very high in some state because VAT Registration is depend on your state. For Example in Delhi there is no security but in other state you have to provide a security as Fixed Deposit or Guarantor.
2. Partnership Firm:-It is a similar like above firm but its need minimum 2 person to get register.
Requirements:-
2 Partners required with ID and Address Proof + Business Place Address Proof.
Simple Steps :-
a) Make Partnership Deed and Register with Registrar of Firms.
b) Open a Current Bank Account with Partnership Deed with Partnership PAN Number.
Advantages in Partnership:-
Basically Partnership is Old Concept after coming the LLP Concept but in Simple Words it is a best for Family Business and best for whose are just testing their ideas and also doing the jobs with Business.
Reason: Partnership Firm data is not available Online for Publicly like a pvt ltd company so it is easy to start and it is too closed any time.
Disadvantages in Partnership:-
Partnership is very Old Concept and it is not much giving the advantages as Compare to Limited Liability Partnership which is similar to Partnership Firm. Another things is when we register the partnership firm without the deed registration then it is a easy and less cost but when we register the partnership firm with deed registration its costing = Limited liability partnership.
Costing Analysis for Partnership Firm:-
Legal Experts Charges nearby 2000/- Rupees to 6000/- Rupees for the partnership firm and depend on partnership deed registration. You can register it online.
3. Private Limited Company:-
It is the Most Popular Business Formation in India and most of the startup chooses private limited company.
Requirements:-
a) Minimum 2 Directors with ID and Address Proof.
b) There are no requirements for minimum capital that is earlier 1 lakh Rupees but now its remove so private limited company back to in Fashion.
Steps taken for Pvt Ltd Company:-
a) Apply for DSC and DIN
b) Apply for Name Approval and Filings Some Forms through Normal Procedure or you can use INC 29 for fastest company registration.
c) Get Incorporation Certificate and apply for pan with open a current Bank Account.
Advantages in Simple Words :-
a) you liability is limited.
b) these days startup prefer venture capital funding and angel funding so its a possible in just private limited company.
c) enjoy company features like separate legal entity and best for growing startups and trustworthy.
Disadvantages:-
a) Very much high Cost for Setup.
b) Burden of More Compliance like Annual Fillings, Secretarial Compliance etc.
c) Audit is Mandatory.
Costing Analysis:-
Legal Experts Charges nearby 13000/- to 18000/- on the 2 Directors and very on capital or many other things.
4. LLP (Limited Liability Partnership Firm):-
It is a new concept in the business formation and also popular for the startups who’s have budget less than 10000/- and want to enjoy company features.
Basically in Simple Words it is a mixture of Partnership firm and pvt ltd company registration.
Requirements:-
Same as Pvt ltd company.
Advantages :-
a) In the LLP Audit is not mandatory so it is a save your Audit Expenses.
b) When Startup Budget is less and want to enjoy Limited Liability in the business.
Disadvantages:-
In the LLP Main Disadvantage that is VC Firm and Angel does not prefer LLP because you can sell your shares like pvt ltd company.
Costing analysis:- Legal Experts Charge for the LLP nearby 8000/- to 10000/- Rupees on the 2 Partners.
DEEPAK DAYAL
(MBA, LLB) | Managing Partner,
Dayal Legal Associates .India.
Advocate, Supreme Court Of India.
Skype: deepak@dayallegal.in
http://www.dayallegal.in
M : +919560732244
O: +919069113331