Start-Up Legal Compliances

Introduction

• A startup company (startup or start-up) is an entrepreneurial venture that is typically an emerging, fast-growing business that aims to solve an unmet need by developing a viable business model around an innovative product, service, process, or platform.
• A startup is usually a company designed to effectively develop and validate a scalable business model.
• Definition of Start-Up
• Start Up as defined vide Notification No. G.S.R. 127 (E), dated February 19, 2019 by DPIIT as:
• An entity shall be considered a startup:

1. Up to a period of ten years from the date of incorporation or registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under Section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.

2. The turnover of the entity for any of the financial years since incorporation or registration has not exceeded Rs 100 crore.

3. The entity is working towards innovation, development, or improvement of products, processes, or services, or if it is a scalable business model with a high potential for employment generation or wealth creation.

Provided that an entity formed by splitting up or reconstructing an existing business shall not be considered a 'Startup' 

Recognition as Startups

The process of recognizing an eligible entity as a startup shall be as follows:

A. A startup shall make an online application over the mobile app or portal set up by the DPIIT.

B. The application shall be accompanied by:

• a copy of the Certificate of Incorporation or Registration, as the case may be, and
• a write-up about the nature of business, highlighting how it is working towards innovation, development, or improvement of products, processes, or services, or its scalability in terms of employment generation or wealth creation.

C. The DPIIT may, after calling for such documents or information and making such inquiries as it may deem fit,

• recognize the eligible entity as a startup; or
• reject the application by providing reasons.

Initial Registration and Licenses

Business entity registration

The entity, after registration, needs to open a current account in the bank before starting business transactions. However, proprietors and partnership firms can open current accounts in the bank and need not wait for registration certificates.

MANDATORY REGISTRATION

• Pan and Tan
• A PAN is a permanent account number (in short, PAN) and is a vital document for any taxpayer. It is a 10-character alphanumeric number consisting of letters and digits, e.g., AAAAA1234A. PAN is issued in the form of a laminated plastic card. PAN card requirements are detailed in the Income Tax Act of 1961.
• Online/Offline Application
• Form 49A-For Resident Individuals/Indian Citizens
• Form 49AA-Foreign Citizens
• NSDL/UTITSL Websites

Linking of PAN with Aadhaar

• TAN
• Tax Deduction Account Number, or Tax Collection Account Number, is a 10-digit alpha-numeric number issued by the Income-tax Department. TAN is to be obtained by all persons who are responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS).
• Online/Offline
• Form 49B

NSDL TIN Website

GST Registration

• The Goods and Services Tax is an indirect tax levied on goods and services. It's a revolutionary change under the tax regime to create one nation, one tax, and one market, i.e., "one nation, one tax." GST was rolled out on July 1st, 2017, replacing indirect taxes like excise duty, service tax, value-added tax, central sales tax, purchase tax, entertainment tax, luxury tax, and octroi that were levied by the central and state governments separately at different tax rates.
• After the GST came into effect, only value addition was taxed, eliminating the cascading effect, or "TAX on TAX, "and levied at similar rates on the same products across the country, which has been simplified in terms of single registration and completely digitalized.
• Registration of any business entity under the GST Law implies obtaining a unique number from the tax authorities for the purpose of collecting tax on behalf of the government and to avail input tax credit for the taxes on his inward supplies. GST being tax on the event of 'Supply' every supplier needs to get registered. Section 22 of the Central Goods and Services Tax Act, 2017 mandates the registration of every supplier of goods whose turnover exceeds INR 40 lakhs in a financial year.
• For special category states such as the north-eastern states, Jammu and Kashmir, Himachal Pradesh, and Uttarakhand, the threshold limit is INR 10 lakhs. The threshold limit for service providers is INR 20 lakhs across India, and in the case of special category states, the limit is INR 10 lakhs.
• Section 23 of the CGST Act, 2017: Persons not liable to register
• Section 24 of the CGST Act, 2017—Compulsory Registration  

GSTIN

• The registration in GST is based on a permanent account number and is state-specific. The supplier has to register in each of the states or union territories from which he effects supply. In GST registration, the supplier is allotted a 15-digit GST identification number called "GSTIN," and a certificate of registration incorporating this GSTIN is made available to the applicant on the GSTN common portal.
• Online Registration
• Form GST REG-01
• Composition Scheme

Other Laws

• REGISTRATION UNDER THE SHOP AND ESTABLISHMENTS ACT
• ESI Registration: 10 or More Persons Employed
• Employee Provident Fund: 20 or More Persons Employed
• POLLUTION CONTROL - Start-ups are allowed to self-certify if their industry falls under the White Category.

Sector-specific registration

• Import/Export Code
• FSSAI
• Drug License
• Banking License
• Non-Bank Finance Company Registration 
• IRDAI Registration 
• Telecom license 
• Industrial Activities 

Summary

A start-up has to comply with different laws from inception to operation and onward. Hence, it will be beneficial if the start-up founders have a fair understanding of the different legal compliances for the effective and efficient operation of their business.

The author can be reached at piyermv@gmail.com.