Indian Startup Now Officially Defined By The Govt; 5 Year Old Company Is Not A Startup Anymore

During last month’s ‘Startup India Stand Up India’ program, one this which was doubted and questioned the most was the definition of a startup – Is it on digital companies making apps or traditional companies having brick-and-mortar outlets can also be described as a startup?

Is Flipkart a startup having founded in 2007 having $15 billion valuation? Can Paytm be described as a startup having 10 million customers and clocking revenues of Rs 300 crore during Diwali sales last year?

We had actually asked this question: What exactly is a startup, just days before the ‘Startup India Stand Up India’ event.

Thanks to a recent notification issued by Department of Industrial Policy and Promotion, this dilemma is now over.

What Is a Startup?

As per the notification dated February 17, 2016, Ministry of Commerce and Industry has described an entity as a startup if:

a) Its age is less than 5 years from the date of registration/incorporation

b) Turnover for any year is less than Rs 5 crore

c) Its working towards “innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property”

These are the three major pillars which shall define any startup in India; and as per these definitions, neither Flipkart nor Paytm is a startup anymore!

Point to be noted here: Any business/corporation which is created by spliting from an existent business shall not be termed as a startup.

What Exactly Is Registration/Incorporation of A Startup?

An entity shall be described as a startup, if it is registered under 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.

Except these three types of registration, no entity shall be deemed as a startup.

Besides, the turnover of Rs 5 crore as defined in this notification would be calculated as per Companies Act 2013 (and subsequent rules/regulations)

What Can A Startup Do?

The third point of the notification detailing the definition of a startup says that the entity shall work towards “innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property”

Basically, this means that the startup can:

a) Develop and commercialize a new product or service or process by using technology or Intellectual Property

b) A ‘significant’ improvement over existing products/services/process/workflow which will add value to the customer’s experience

Now, note here that there merely developing a product or service won’t suffice anymore. In case a product is developed by a startup but it has no potential for commercialization, then that entity won’t be described as a startup.

Similarly, undifferentiated products/services and those businesses which do not add value to customers/workflow won’t be categorized under startups. (ambiguity persists in this clause: Commercialization of WhatsApp is still not clear!)

The notification also details the procedure of creating a startup, wherein DIPP has said that a special mobile app would be developed using which any citizen can register and incorporate a startup with minimum papers and documents.

You can access the notification issued by Department of Industrial Policy and Promotion under Ministry of Commerce and Industry here.

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