How to register Startup in India

Start-up India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Start-ups in the country that will drive sustainable economic growth and generate large scale employment opportunities. This articles explains how to register Startup in India. A startup is a new or existing business, usually small, started by one or a group of individuals. What differentiates it from other businesses is that a startup is:

  • Innovative
  • Aims to improve products or services
  • Is a Scalable business model
  • Leads to employment generation or wealth creation
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How to Register Startup in India

There are 7 Steps to Register Startup in India:

1. Register your Company: The business must be incorporated in any of the three forms: – Private Limited CompanyLimited Liability PartnershipPartnership Firm

2. Check if you fulfill other conditions: If your business is already incorporated, then check if you fulfill all other conditions to be recognized as a Startup:

-Your business must be incorporated in India not before 7 years. (10 years for Biotechnology sector)

– The total turnover of your business must be less than Rupees 25 crores per year.

– Innovation is a must– the business must be working towards innovating something new or significantly improving the existing used technology.

– Your business must not be as a result of splitting up or reconstruction of an existing business.

3. Register in Startup India: Register your entity as a Startup after providing necessary details and documents such as:

– Name and Address of the business entity

– Registration Number of the business entity

– Name, Address, Mobile Number and Email Id of the Authorized Representative

– Name, Address, Mobile Number and Email Id of the Directors/Partners

You can register here

4. Submit documents: The only mandatory document that needs to be submitted for registering as a Startup is the Incorporation Certificate or Registration Certificate of your entity. You may submit any document that adds value to your application and justifies how you are eligible to be recognized as a startup.

5. Provide Brief note on innovativeness/scalability of business model/ potential of employment generation/ wealth creation: This is the most important part of the application and should be carefully drafted with full details and justification of the innovativeness and scalability of your business model. Your idea should be communicated right across in brief and in simple terms.

6. Self Certification: After completing all the above steps, you need to self -certify the application stating that all the conditions stated by the government are fulfilled by your organization and therefore it may be considered as a business covered under the definition of Startup.

7. Submit the application: Submit the self-certified application form. The Certificate of Recognition for Startups will now be issued after examination of the application and documents submitted. If you application is selected, you will be issued a Startup Recognition Certificate issued by the Government of India on an online basis. The Certificate and then be used for availing all the benefits available to a recognized startup.

We hope with the above steps you will be able to register your startup in India. If you need any help, please contact us at [email protected].

New definition of Startup

Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Department of Industrial Policy and Promotion (DIPP), the nodal body for Startup India, taking into account the long gestation period in establishing startups, has revised the definition of startups in its startup action plan with a view to encourage startups in India and also to make procedures easy. As per the recent notification on 23rd May 2017, basic criteria to be considered as a Startup are –

Acceptable Form of Business

– a private limited company (registered under the Companies Act, 2013), or

– a limited liability partnership (under the Limited Liability Partnership Act, 2008), or

– a partnership firm (registered under Section 59 of the Partnership Act, 1932)

Type of Business

– Should work towards innovation, development or improvement of products or processes or services, or

– Scalable business model with a high potential of employment generation or wealth creation

Period for which it will enjoy the status of a startup

– Biotechnology sector – 10 years

– Others- 7 years

Other Conditions

1. Turnover : Turnover for any of the financial year should not exceed Rs 25 cr.

2. Entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘Startup’.

NOTE- a business already in existence fulfilling all the above criteria will also be considered as a startup.

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Startup

WHY YOU SHOULD REGISTER YOUR STARTUP?

The Department of Industrial Policy and Promotion has laid down many advantages in its startup action plan for registered startups.

– Self-Certification of compliance under 9 environmental & labour law

– Income tax exemptions for three years

– Tax exemptions on Capital gains and investments above fare market value.

– Fast track process of patent registration and 80% rebate on filing patents

– Rs. 10,000 crore fund to support start-ups through alternate startup funds.

– Guarantee fund for startups through National Credit Guarantee Trust Company / SIDBI over 4 years

– 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).

– 90 day window to wind up/ close business under insolvency & Bankruptcy code 2016

Process of recognition

The process of recognition as a ‘Startup’ shall be through an online application made over the mobile app/ portal set up by the Department of Industrial Policy and Promotion. Entities will be required to submit the online application along with the Certificate of Incorporation/ Registration and other relevant details as may be sought. Startups also have to submit a write-up about the nature of business highlighting how is it working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

Revocation

If recognition is found to have been obtained without uploading the relevant documents or on the basis of false information, DIPP reserves the right to revoke the recognition certificate and certificate of an eligible business for tax benefits immediately without any prior notice or reason.

Understanding Employee Stock Option Plans (ESOP)

Startups have set a certain benchmark when it comes to providing employees with more than just a salary. One such policy that has caught the attention of all is ESOP or the Employee Stock Option Plans.

In the recent era, companies are adopting many employee-friendly policies in order to retain good employees who is up the ante when it comes to company performance and growth. From providing extended maternity leave and women-friendly policies to adopting flexi timings, corporate organizations are leaving no stone unturned to be the leaders and trendsetters in their field of work.

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Employee Stock Option Plans (ESOP)

ESOPs were never as popular until a few years back. Traditionally, these stock options were awarded to senior employees by companies to acknowledge their loyalty and performance. However, in the era of startups, ESOPs are being used as candy to attract good talent at affordable salaries. They are a way of keeping employees focused on company performance and share price appreciation.

ESOPs are not as simple as they seem. Most employees who are given this option believe that they have unlocked a treasure chest! Let us highlight some basic concepts behind this scheme and dispel misnomers.

What are ESOPs?

An ESOP is a qualified, defined employee benefit plan that allows employees to purchase a specific number of shares in a company at a predetermined discounted price in lieu of salary. They are in strict compliance with the Companies (Capital and Debenture) Rules, 2014. There is a vesting period (a waiting period) before they can actually exercise their right to purchase the shares. If an employee leaves the organization during this lock-in period then the ESOPs get lapsed and the benefits stand null and void.

Who is entitled to ESOPs?

As per the Companies Rules, 2014, ESOPs can be given out to the following.

– A permanent employee working in or outside India

– A whole-time or part-time director of the company

– An employee of a subsidiary in India or abroad, holding a company or an associate firm A promoter or a director holding more than 10% of the share equity of a company will not be entitled to participate in this scheme.

The trend was in fact set by software firms like Infosys and Wipro who presented these options to even their clerical staff. There are known examples of even drivers, office assistants, and personal secretaries employed by these IT companies, who turned millionaires, thanks to this scheme.

A motivating sense of ownership:

Offering stocks of the company to employees instills a sense of pride and partnership in them. It keeps them motivated to give their best to the organization thereby building a better value for the company. The participants often push their limits as the growth of the company translates to their own.

Saving on cash:

  For startups, it is a good tool to maintain liquidity. In the early days, ESOPs were smartly presented by small companies to their employees as part of their compensation package to make the overall pay look more attractive without actually affecting the company’s cash reserves.

The tax deal:

How the Indian tax department looks at ESOPs has changed in the past two decades. When ESOPs are issued, the benefits arising out of the scheme are taxed as perquisites and form a part of the employee’s salary. The perquisite value is calculated as the difference between the market value of the stock and the exercise price (ie, the price at which the Company shares are purchased by the employee through the ESOP scheme).

If the employee sells these shares subsequently, then Capital Gains Tax is applicable on the proceeds of sale of stock options. The capital gain is calculated as the difference between the sale price and the price of issue of stocks. The tax applicable also depends on the period for which ESOPs are held. Gains arising out of stocks that are held for more than 12 months from the date of issue are exempted from Capital Gains Tax.

A word of caution Both as an employer and an employee, care must be taken while handling ESOPs. As a company, you have to do the following.

– First, create an ESOP pool and allocate the number of shares that you would like to give out as part of this scheme. Then draft an ESOP scheme, get it approved by the shareholders through an ordinary/special resolution, and file with the Registrar of Companies (ROC).

– While handing over this offer to an employee, a Letter of Grant must be issued in his name, clearly specifying the number of options being granted to him, the vesting period, and other terms and conditions. Remember, when employees exercise their option, the company’s share holding gets diluted.

As an employee, take care to of the following points.

– Ask your employer for a copy of the scheme while accepting the stock options.

– Present an Exercise Application to the employer in case you wish to exercise the option.

– Look for the vesting period clause carefully. There is also an exercise price that is to be paid to the employer in order to exercise the vested options.

The options will not be converted into equity in case you do not wish to pay a price. It is safer to look at ESOPs as an added bonus and not as a part of the salary component. Even though ESOPs are a great incentive for employees, the best rewards can be reaped as part of high growth companies or big multinationals.

VenturEasy can help you with issuing ESOP to your employees. Get in touch with us at ventureasy.com

Valuation of a Company – Discounted Cash Flow Method

How to derive valuation of your company or startup after detailed analysis and projections? How do investors determine which stock to put their money on?

When it comes to determining the absolute value of a company, discounted cash flow (DCF) gives you the answer. In simple terms, DCF tries to work out the present-day value of a company, based on future projections of cash available to the investors.

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Valuation of a Company – Discounted Cash Flow Method

The word ‘discounted’ arises from the concept of ‘time value of money’. If the value thus arrived at, is higher than the current value of cash invested, then it is considered to be a good investment opportunity. Some of the terms used in DCF analysis are as follows.

  • Free cash flow (FCF) Cash generated by both tangible and intangible assets of the firm that is available to investors. It is calculated as operating cash flow minus expenditure.
  • Terminal value (TV) This is the value of cash at the end of the forecast period.
  • Discount Rate The interest rate used to determine the present value of future cash flows by taking into account the time value of money and the risk involved. Greater the uncertainty and risk, higher the discount rate.

How DCF works The method involves projecting cash flows (FCF) over a certain period, calculating the terminal value (TV) at the end of that period, and then discounting the cash flows and the TV using an appropriate interest rate. The value thus obtained is called the Net Present Value (NPV) of the company.

The formula This can be better understood with the help of an example. Let us calculate the worth of a Company A using DCF analysis. Firstly, we would assess the company’s future cash flow growth. Let us assume that the company’s 12-month FCF is Rs 50 million.

Some other factors to be considered here include the company’s previous year FCF, growth, and factors for growth to assess sustainability.

The company is assumed to grow at 10% per annum in the first 5 years. For calculating the TV, let us assume the long-term growth rate to be 5% and the calculated Weighted Average Cost of Capital (WACC) or discount rate to be 8% (actual calculation is not done here).

The terminal value is calculated as below.

Terminal value = projected cash flow for final year (1+ long-term growth rate)/ (discount rate- long-term growth rate)

Year 1 = 50*1.10 55

Year 2 = 55*1.10 60.5

Year 3 = 60.5*1.10 66.55

Year 4 = 66.55*1.10 73.20

Year 5 = 73.20*1.10 80.52

Terminal value = 80.52 (1.05) / (0.08-0.05) = 2818.20

Now, the DCF of Company A can be calculated by adding each projected cash flow after adjusting it using WACC, as shown below.

DCF (Company A) = (55 / 1.08^1) + (60.5 / 1.08^2) + (66.55 / 1.08^3) + (73.20 / 1.08^4) +(80.52 / 1.08^5) + (2818.20 /1.08^5)= 2182.22

Thus, Rs 2.18 billion is our estimate of Company A’s total market value. In order to compare the company’s share value in the market, we need to subtract the net debt and divide the result by the number of shares outstanding.

For example, if the company has 10 million shares, the value of fair equity per share will be Rs 218.22. If this value is higher than the actual current stock price of the company, then we can say that Company A is a good investment.

In addition to being cumbersome and complex, a major disadvantage of this method of analysis is that the accuracy of values varies greatly based on the assumptions made, and the values are often expressed as a range.

Any small changes in inputs can lead to widely fluctuating results. However, the main advantage of DCF analysis lies in the fact that it is the closest to intrinsic stock value. It is also a futuristic and fundamental method of evaluation.

VenturEasy can derive valuation of your company after detailed analysis and projections. Get in touch with us at [email protected]

What startups can learn from Patanjali: an FMCG empire

An FMCG empire which was nowhere in the radar of powerpoint analysis by big companies even few years ago. Today, the man and the brand are a phenomenon to reckon with.

The brand in question is Patanjali whose products are found everywhere today – be it in local medicine shops or on the sites of e-commerce biggies like Amazon. Best-quality products, competitive prices, and a distribution chain that rivals some of the best industry players are only few of the feathers in this Yoga guru’s cap. All this with an unassuming aura that only Baba Ramdev can possess.

Patanjali Ayurved Limited was started by Acharya Balkrishna, Baba Ramdev’s companion in 2007. The aim was to popularize Ayurveda, India’s ancient medical science. With 15,000 exclusive outlets in India, Patanjali sells every product one can imagine being sold by rival brands. The products are healthy and organic and include products for personal care and food such as soaps, shampoos, dental care, balms, skin creams, biscuits, ghee, juices, honey, atta, mustard oil, masala, sugar, and many many more.

According to a survey by the IIFL, by FY20, Patanjali will have high market shares in categories such as honey (35%), ayurvedic medicine (35%) and ghee (33%) and will have eight categories with turnover greater than Rs 10 billion (Rs.1,000 crore). Indeed, entrepreneurs have much to take away from the success of this man and his brand.

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What Startups can Learn from Patanjali: An FMCG Empire

Here we look at some of the key points for entrepreneurs to assimilate and build a similar if not better success story for their startups.

1) Build a great product If you don’t have a product that satisfies some need, solves a problem and works (almost) as you claim – don’t bother about content or any other kind of marketing. It is more important to assess the consumer and build a great product. Only then should you bounce back and market it and apply other techniques.

The high and mighty FMCG players are today deliberating on the rapid entry of brand Patanjali into the FMCG market. Initially, as it started off, it was just put aside as another “organic product selling” brand that was not even in the threat list of bigger players. Today, the company is technically equal to Emami brand, according to estimates. The idea is to build a great product first and then focus on other aspects.

Key Learning: Don’t aim to beat your competitors at the game, try changing the game for them instead!

2) Marketing “We never had a business plan. We also don’t know markets or marketing,” says Acharya Balkrishna, managing director of Patanjali Ayurved, which began operations two decades ago. “But what we know is serving the people by providing them high-quality products at attractive prices.” They knew who their consumers were. With a very specific profile, the content marketing needed to revolve around consumers. These were products meant for a specific kind of lifestyle and not something to be endorsed by celebrities as something only they have the luxury to possess. With startups booming left, right, and centre, it is important to focus on who your consumers are and which is your market.

Key Learning: Focus on the need and then market the product to niche consumers.

3) Branding Patanjali started off the branding exercise by diversifying from the yoga empire to FMCG. Patanjali has the advantage of being associated with a personality, Baba Ramdev, a yoga guru with a following of millions who popularizes this brand through his camps. When health-conscious customers were egged on to use Patanjali products, they never looked back. The products were ‘healthy’ substitutes.

The brand, however, does not only survive on Baba Ramdev’s popularity or on some predetermined business model. Ramdev educated the masses about the evils of MNCs, how products made in India were better, corporate corruption and exploitation of farmers, how fertilizers and many chemicals used in daily products are cancerous, and so on and so forth. With enough reasons given, people were now free to explore his products. No shouting over rooftops about how great his products are. He just created the right environment for people to explore alternative and healthier products.

Similarly, startups today must play the right cards at the right time. The least expensive deal for Patanjali till now has been marketing and advertising. They rely largely on word-of-mouth via the yoga classes (1 lakh free yoga classes every day across the country). However, change is about to arrive in the form of roping in top advertising agencies like McCann and Mudra to roll out the next phase of expansion.

Patanjali will also be launching its mobile app, which will allow consumers to locate nearby outlets that are selling Patanjali products and also facilitate online ordering Brand equity of Patanjali products are built around yoga and the baba who practices and preaches the discipline. Obtain consumer trust first and brand reach will naturally follow.

Baba Ramdev has over 500k twitter followers, and keeps them engaged with regular updates and replies. A successful entrepreneur believes in connecting with the people and leveraging his/her personality for the brand.

Key Learning: Leverage your skill set and educate consumers, they will eventually become your customers.

4) Right pricing Foreign brands and MNCs reach only so far in a country were about 70% people live in rural and semi-urban areas. Their prices are also such that the common man may not be able to afford. Patanjali products actively endorse the “Make in India” philosophy and are low in price.

According to a study, the Swadeshi brand is a big intimidating factor for many of the big players in the FMCG empire! Aggression on the price front is visible in all categories.

Key Learning: Price your product as per market affordability and competition.

5) Optimism Be persistent, but know when to pull back and when to go full steam ahead. Despite facing many challenges and roadblocks like Food department raids, Baba Ramdev did not give up on his optimism and the belief in his products and venture. He did so by lying low on some occasions and propelling himself to limelight in others. Handling a situation is what makes a winner different from a person who “almost tried”. If you give up with a pessimistic approach, it will result in losing the trust of your customers too! Key Learning: Never give-up!

6) Value to Consumer Outside of Ramdev’s loyalists, many people are buying Patanjali for a ‘different’ product experience. This set of consumers desires quality, is not married to any particular brand, is rooted and balanced, and is swayed neither by spirituality nor by politics. But they still adore Ramdev products because of the value it offers to them. For the same category of products, consumers are exposed to hundred ads per day. It is the value of the product that makes the difference in the long run.

Key Learning: What is the value to consumer offered by you? Why would loyalists turn and consider your product on face value?

Patanjali is also one of the bigger faces of the Make In India campaign and is a huge boost to this ideology. The International Yoga Week is another phenomenon that is aligned to the cause of leading a healthy life and who would be better to leverage the cause than Patanjali and Baba Ramdev?

Startups need to ensure that they understand the need for something, focus their product around it, endorse the brand and then focus on expanding. We are proud that an enterprise like Patanjali has helped people to admire “Swadeshi” again!

This article was originally published here