Do you know that there is a difference between a start-up and starting an organization in legal terms? Spare a few minutes and understand the legalities involved….
Start-up or starting an organization
Most of the businessmen like to use the term “Start-up” without knowing the actual meaning of Start-up. There is a big difference between a “Start-up” and a “starting organization.
There are 3 important criteria for being called a Start-up as per notification issued by DPIIT:
1. Entity should be a private limited company or registered partnership firms or LLP for a period of 10 years only from its incorporation.
Comment: Most of the proprietors and unregistered partnership firms claim to be a Start-up without knowing the fact that they can never be called a start-up. Further they can never be approached by anyone to takeover of the company in view of unlimited liability which they are carrying with their business.
Turnover should not exceed 100 crore
2. Facility of transferring shares and easy exit is available in private limited companies that are why most of start-ups choose to form a private limited company over other available options. Turnover should not exceed Rs 100 Crores since incorporation.
Comment: This condition looks very lucrative and fascinating to the starting organizations because of which they would like to be called as a start-up, whereas they don’t like to fulfil other conditions of being a start-up.
Ashish Bajaj
Criteria of the start-up
3. Entity should work in innovation, development of products / services, high potential of employment generation.
Comment: One of most important aspects i.e. innovation which is missing in the most of the starting organizations. Other aspects like development / improvement of products / services and high potential of employment generation are also being ignored by the starting organizations at the time when think of being a start-up.
The starting organizations are always desirous of availing tax benefits without fulfilling the eligibility criteria required for being a start-up.
Eligible Start-ups may take benefit of deduction under section 80-IAC of Income Tax Act, 1961. Further exemption are also available under section 56(2)(viib) of Income Tax Act, 1961.
Ashish Bajaj is a Chartered Accountant qualified in 2006. He is having multi tasking experience of more than 15 years. He has been handling assignments relating to accounting, direct and indirect tax compliances and litigation, ERP implementation, Financial and Tax Due Diligence in case of merger and acquisitions etc. He has been working closely with the starting organizations.
Views expressed by the author are personal
Keywords: start-ups, chalgenius, starting organisation
Views expressed by the author are personal
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