Incorporation, Investment, and Intellectual Property for Start-ups in India

1. Incorporation:
 A company needs to be initially registered as a Private Limited Company with the
registrar of companies, or as a Limited Liability Partnership or Unlimited Liability
Partnership with the registrar of firms.

 The company needs to be registered with Startup India, which can be done on the
Startup India website Once, your profile is created on the website, startups can
apply for various acceleration, incubator/mentorship programmes and other
challenges on the website along with getting access to resources like Learning and
Development Program, Government Schemes, State Polices for Startups and pro-
bono services.

 The next step after creating the profile on the Startup India Website is to avail the
Department for Promotion of Industry and Internal Trade (DPIIT) Recognition.
This recognition helps the startups to avail benefits like access to high-quality
intellectual property services and resources, relaxation in public procurement
norms, self-certification under labor and environment laws, easy winding of
company, access to Fund of Funds, tax exemption for 3 consecutive years and tax
exemption on investment above fair market value.

For getting DPIIT Recognition, log in with your registered profile (account)
credentials on the Startup India website and click on the ‘Apply for DPIIT
Recognition' option under the ‘Recognition’ tab.

A company can be registered under these only if:

 Period of existence and operations should not be exceeding 10 years from the Date of
Incorporation
 Incorporated as a Private Limited Company, a Registered Partnership Firm or a
Limited Liability Partnership
 Should have an annual turnover not exceeding Rs. 100 crores for any of the financial
years since its Incorporation
 Entity should not have been formed by splitting up or reconstructing an already
existing business
 Should work towards development or improvement of a product, process or service
and/or have scalable business model with high potential for creation of wealth &
employment

 Start Up recognition application, On the ‘Startup Recognition Form’, you need

to fill the details such as the entity details, full address (office), authorized
representative details, directors/partner details, information required, startup
activities and self-certification.
After this the following documents have to be provided:
 Incorporation/Registration Certificate of your startup
 Proof of funding, if any
 Authorization letter of the authorized representative of the company, LLP or
partnership firm
 Proof of concept like pitch deck/website link/video (in case of a validation/ early
traction/scaling stage startup)
 Patent and trademark details, if any
 List of awards or certificates of recognition, if any
 PAN Number

 On applying you will get a recognition number for your startup. The certificate
of recognition will be issued after the examination of all your documents
which is usually done within 2 days after submitting the details online.
However, If on subsequent verification, it is found to be obtained that the
required document is not uploaded/wrong document uploaded or a forged
document has been uploaded then you shall be liable to a fine of 50% of your
paid-up capital of the startup with a minimum fine of Rs. 25,000.

2. Investment
 Pre seeding stage: This is the earliest stage of startup funding when founders
are getting their operations off the ground. At this stage, founders are trying to
bring their idea to life. Consequently, minimal and mostly informal funding
channels are available. The most common pre-seed funding sources are self-
financing, friends and family and business pitching events. Most founders
resort to bootstrapping their startups, which means utilizing their savings as
there is no external constraint or dilution of control. Additionally, founders
also tap into their friends and family network to raise money. Founders with
extraordinary business plans and pitches also try their luck at business pitching
events where the host institutes or organizations provide prize money, grants,
or financial benefits.

 Seeding stage: is analogous to planting a seed and the funding received helps
the seed grow into a tree. It is the first equity funding stage wherein investors
expect some equity in exchange for funds. During this stage, founders validate
their product/service’s potential demand and conduct a proof of concept
(POC). Seed funding enables the founders to conduct market tests, onboard
mentors, and build a founding team.

Common sources at this stage are incubators, accelerators, angel investors,

and crowdfunding platforms. Incubators and accelerators are organizations
that nurture entrepreneurs to build their startups by providing essential
building blocks. This includes capital, space, utilities, and legal assistance,
among others. Founders also reach out to angel investors who invest in high-
 potential startups for an equity stake. Additionally, there are crowdfunding
platforms where entrepreneurs can raise money from a large group of people.

 Series A funding: This is the post-market launch stage when a startup’s

products or services are available to the customers. Investors financing at this
stage give importance to key performance indicators like customer base,
revenue figures, and app downloads, among others. The Series A stage also
marks the beginning of venture capital (VC) financing. Funds raised at this
stage assists the startup in acquiring new customers, launching new offerings
and expanding its geographical footprint. The most common funding sources
are VC companies and super angel investors. VCs manage professional
investment portfolios and finance exclusively in high-growth startups. VCs
take equity in exchange for their funds and actively participate in the
mentorship, management, and planning of the startup. Angel investors also
participate in this funding stage but have a diminished influence compared to
VCs.

 Series B funding: Startups in this stage have dedicated user bases and steady
streams of revenue. At this point, you've proven you can scale your idea.
Investors can now help you Employ advanced market reach activities, increase
market share, Form operational teams such as business development and
marketing

 Series C Funding: Series C funding is for a company well on its growth path
and often interested in expanding globally. It may be easier to find investors at
this stage, as they trust the startup to succeed. Funds at this phase are used to
do the following Build new products, reach new markets, Acquire
underperforming startups in the same industry

 Series D funding: There are usually two reasons a startup goes past the Series
C funding round. They are:
 New opportunities: A potentially lucrative opportunity appears that
requires the company to act before the Initial Public Offering
(IPO).
 Subpar performance: The startup misses the goals set during the
Series C round of funding. It then raises more funds in the Series D
round to address the issues.
There is no limit to how many funding rounds a startup can go through. If a company
has more advanced revenue goals, it may complete as many fundraising series as
necessary.

 Beyond series funding: Exit options

Once the startup has travelled past the series of funding stages, in the exit option stage. This
includes options such as mergers and acquisitions, initial public offerings (IPOs), and share
sales or buybacks. 

It is the collective aim of all startups to go public. Issuing an IPO is synonymous with
reaching the pinnacle of success. Only startups with a proven track record of profitability and
growth can sell stock to the general public and list on the stock exchange.

Besides launching an IPO, founders may decide to acquire or be acquired by another

company. They may also sell the startup or their shares to another company, as well as to
venture capitalists or private equity firms. Founders may decide to buy back their own shares
from investors in order to regain control of their company.

ALL INVESTMENTS ARE REGULATED BY SEBI UNDER THE AIF

REGULATIONS

https://www.bcasonline.org/referencer2016-17/Other%20Laws/
sebi_alternative_investment_funds_regulations_2012.html

3. Intellectual property

Benefits for startups in India;

The Start-up India Campaign has been launched to promote the youth and creative people to
start their own businesses. However, the new ideas and innovations that are being put into
action need protection so as to encourage people to think other new ideas and put them into
action, besides being the driving force to a secured commercial and IP environment.
To provide protection to the ideas and innovations of Start-ups, the Government of India has
launched the Scheme of Facilitating Start-Ups Intellectual Property Protection (SIPP) which
is envisaged to facilitate the protection of Patents. Trademarks and Designs of innovative and
interested Start-Ups and to encourage innovation and creativity among them. Therefore, there
is an increasing importance of protecting one's intellectual property (IP) in the highly
competitive business arena, which is also being recognized by the Government
Eligibility Criteria for SIPP
To be eligible for the SIPP scheme, start-ups must fulfill the following criteria:
 The start-up should be incorporated as a Private Limited Company or a Registered
Partnership Firm or a Limited Liability Partnership (LLP) under the Companies Act,
2013 or the Limited Liability Partnership Act, 2008
 The start-up should not be more than 10 years old from the date of its incorporation
 The turnover of the start-up should not have exceeded ₹100 crores in any of the
previous financial years
  The start-up should have a unique business idea or a product that is innovative and
has the potential to create a scalable business model with a high degree of
employment generation or wealth creation.

Benefits for startups under SIPP:

 To promote awareness and encourage IPR protection amongst Start-Ups the Scheme
for Facilitating Start-Ups Intellectual Property Protection (SIPP) launched.
 Start-ups can avail patent, trademark, and design services by paying them only
required statutory fees and professional fees are excluded as part of the SIPP scheme.
 The Government would pay nominal professional fees for the services related to
procuring the Intellectual Property Rights (IPR) to the advocates or trademark agents
in charge of handling the IPR process.
 Start-ups can avail of a complete start-to-end array of services under this SIPP
scheme, including general advice, assistance in drafting applications, preparing and
filing responses to examination reports, appearing at hearings, contest opposition and
ensuring the final disposal of the Intellectual Property Rights application.
 For effective implementation of the scheme, the DPIIT has empaneled several
facilitators, who are required to provide IPR related services to Start-Ups.
 As per the scheme, facilitators will not charge anything from a Start-Up. The fees are
paid directly by the government.
 As per the revised guidelines, the Start-Ups enrolled under this scheme will not be
required to obtain a certificate of an eligible business from the Inter-Ministerial Board
of Certification.