‘Start-up’ is probably one of the most talked about topic in
our country right now. Everyone wants to be his/her own boss and earn millions.
But, the important question is ‘what exactly is a start-up?’
Can you call a shipping company which came into existence
just 2 years ago but, happens to be earning several million dollars a year, a
start-up? What about that small bookstore which has been running its business
in your locality for past several decades? A lot of people are claiming to be ‘owners’
at their ‘startup’ even if their understanding of the word itself is
According to Stanford professor, Steve Blank, a start-up is
a ‘temporary organization used to search for a repeatable and scalable business
The word ‘temporary’ implies that the long term goal of a business venture,
claiming to be a ‘start-up’ is to move on to a larger scale and ‘stop being a
start-up’. Either that, or to fail and find another idea for another venture.
Still doesn’t clear anything, right?
Under the aegis of the current Prime Minister of India, the ‘startup
India’ campaign was launched in the very beginning of 2016. The main objective
of the campaign is to promote start-up ventures to boost entrepreneurship which
would lead to creation of job, which would, thus, lead us to the long term goal
of any economic planning i.e. eradication of poverty.
This article shall explain the current and latest definition
of the phrase ‘start-up’ as per the Department of Industrial Policy and
Promotion (under the Ministry of Commerce and Industry, Government of India).
It shall further discuss the benefits available to ‘start-ups’ as to
registration of patents in the country.
Before the inception of the Patent (amendment) rules of
2014, only 2 categories of applicants were recognized – ‘natural persons’ and ‘other
than natural persons’. A third kind i.e. ‘small entities’ was introduced after
the 2013 draft of the amendment was met with criticism due to the proposal of
substantial free hike in the whole application process.
After the notification of the 2014 rules, there could be
mainly 3 categories of applicants:
Other than natural persons, this was further
Other than small entities2
On April 17, 2015, the Ministry of Commerce and Industry
released a notification to define ‘startups’. Subsequently, ‘start-up’ was
added as a 4th category of applicants and gave its formal
definition, according to which:
entity will be considered a startup as long as the below listed conditions
(non-subjective conditions are listed in this article) are met by the entity.
Entity has to be a Private Limited company (as defined in the Companies Act, 2013), or
a registered partnership firm (registered
under section 59 of the Partnership Act, 1932) or a Limited liability partnership (under the Limited Liability
Partnership Act, 2002).
5 (Five) years
should have not lapsed since the date of registration or incorporation of the
Turnover in any of the financial year should not
be more than INR 25 crores.
Entity should not have been formed by splitting
up or reconstruction of a business already in existence.
Entity is working towards innovation, development, deployment or
commercialization of new products, processes or services driven by
technology or intellectual property. (This activity has been clarified to be
creation or addition of value for customers or workflow).
Now, according to Section 2 (68) of the Companies Act, 2013,
“private company” means a company having a minimum paid up share capital of INR
1 lakh or such higher paid up share capital as may be prescribed, and which by
Restricts the right to transfer its shares;
Except in case of One Person Company, limits the
number of its members to two hundred:
Provided that where two or more persons hold one
or more shares in a company jointly, they shall, for the purposes of this clause,
be treated as a single member:
Provided further that—
Persons who are in the employment of the
Persons who, having been formerly in the
employment of the company, were members of the company while in that employment
and have continued to be members after the employment ceased, shall not be
included in the number of members; and
Prohibits any invitation to the public to
subscribe for any securities of the company.3
DEFINITION AS PER
PATENT (AMENDMENT RULES), 2017:
According to the Indian Gazette’s notification
of 1st December, 2017,
An entity in India recognized as a startup by
the competent authority under Startup India initiative.
In case of a foreign entity, an entity
fulfilling the criteria for turnover and period of incorporation! registration
as per Startup India Initiative and submitting declaration to that effect4
CONDITIONS TO FULFILL
IN ORDER TO BE CATEGORISED AS A START-UP
It can be inferred from the definition given by the
Department of Industrial Policy and Promotion (DIPP) that the latest definition
of ‘startup’ is as follows:
Startup means an entity, incorporated or
registered in India :
Not prior to 7 (seven) years, however
for Biotechnology Startups not prior to 10
With annual turnover not exceeding INR 25 crore
in any preceding financial year,
Incorporated as either a Private Limited Company
or a Registered Partnership Firm or a Limited Liability Partnership,
Working towards innovation, development or
improvement of products or processes or services, or if it is a scalable
business model with a high potential of employment generation or wealth
Provided that such entity is not formed by splitting up, or reconstruction, of a
business already in existence.
Provided also that an entity shall cease to be a Startup if its turnover for
the previous financial years has exceeded INR
25 crore or it has completed 7 years and for biotechnology startups 10
years from the date of incorporation/ registration. Provided further that a
Startup shall be eligible for tax benefits only after it has obtained
certification from the Inter-Ministerial Board, setup for such purpose.5
major point of difference between the current definition and the previous definition
is the duration of eligibility. According to the amended rules of 2016 by the
Government of India, a “startup” is defined as a new company/LLP/a registered
Partnership firm, that has been founded not more than 5 (five) years ago. There was no provision as such for
biotechnology startups as such.
goes without saying that an entity needs to provide evidence/s in support of
the above listed conditions in order to avail the tax benefits available to
start-ups. Furthermore, a start-up needs to obtain a certificate of an eligible business from the Inter-Ministerial Board of
Certification as constituted by Department of Industrial Policy and
Promotion from time to time.
to the notification dated 23rd May, 2017 startups were required to
get a letter of recommendation from an incubator or an Industry Association for
either recognition or for claiming tax benefits under the ‘Startup India’
campaign. Post the notification, there is no such requirement to be fulfilled
and, thus, the process of application of patent has become a lot easier. This step
is quite likely to improve the ease of doing business in India.
RECOGNITION OF A START-UP
to the notification dated 23rd, May 2017, 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.6
FEES FOR REGISTRATION OF A PATENT
Startups have been introduced as a new entity
type apart from individual, small entity and large entity, i.e., they are
entitled to get fee reduction equivalent to “individual persons” instead of
small entity/large entity in amended rules. Hence, startup would pay 60% less
in government fee compared to the fee that was applicable prior to the
As the startups are now being considered as a
new entity, this is going to bring down the patent fees and make them eligible
for 80% rebate on official fees, as per the startup action plan. The application fees for startups will now be
INR 1600 and for companies INR 8000.7
The DIPP will bear the
facilitation cost on behalf of startups and provide rebates in the statutory
fee for the filing of applications. 8
For the expedited
patent registration, the startups have to pay double the fees against thrice the amount for other companies.
Under the faster clearance route, the application fee for individuals and
startups is INR 8000, while for established and older companies it is about INR
60000. To avail of intellectual property rights-related benefits, a startup is
required to obtain a Certificate of Recognition from DIPP.
Ø Tatkal Patents
A new ‘tatkal’ option has been introduced that seeks to
expedite the registration process for all new applicants.
It aims to reduce the application period
from the prevailing 5-7 years to 18 months by March 2018. This service can be
enjoyed only by
o Applicants who have listed India in their international
application (in accordance with the Patent Cooperation Treaty) as the competent
International Searching Authority or elected as an international Preliminary
Examining Authority or
o Applicants that are startups. The expedited examination
service is available only through the electronic route.9
It is easier to get a patent registered by a start-up
than ever. In order to promote the ‘Digital India’ movement, provision for
filing of a patent application online has been introduced. Furthermore, the
difference in cost (10%) between online and offline filing is more likely to
encourage start-ups from taking the non-conventional route of getting their
Section 2(68), Companies Act, 2013.