The government has finally come out with the definition of a ‘start-up’ to ensure that only deserving companies get the benefits of the ‘Startup India Action Plan’ and to create a conducive environment for startups in India. According to the government notification, an entity shall be considered as a ‘startup’

1. Up to five years from the date of its incorporation/registration,
2. If its turnover for any of the financial years has not exceeded Rupees 25 crore, and
3. It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’.

The notification describes the word entity as a private limited company, or a registered partnership, or a limited liability partnership firm. However, there is no mention of sole proprietorship or a one person company to be qualified as a startup.

The notification says that to be able to benefit from the plan, a ‘start-up’ should have at least 20% equity funding by any incubation, angel or private equity fund, and an accelerator or angel network duly registered with SEBI should be endorsing the innovative nature of the business.

The process of recognizing a startup would be done through a mobile application/portal. However, till the time, the mobile application becomes operational, an alternative arrangement will be made by the Department of Industrial Policy and Promotion (DIPP).

You can view the full notification here.

Prime Minister Narendra Modi launched the ‘Startup India’ initiative in January this year, announcing a string of incentives for startups to get greater access to capital, incubation and talent.