Startup rush, no. of new pvt cos up 36% in 2015 16

1. Startup rush: No. of new pvt
cos up 36% in 2015-16

2. Contd…
The burgeoning startup ecosystem seems to have boosted growth of non-
government or private companies. During the year 2015-16, as many as 60,414
private companies with an aggregate authorized capital of Rs 10,845 crore were
registered (statistics are up to December 31) -a hike of 36% over the previous
corresponding period (see table). Experts say that a private company is the best
legal entity form for incorporation of a startup, especially one which is growth-
oriented.
At the same time, traditional businessmen functioning as solo proprietors
continued to show their preference for one-person companies (OPCs), with
registrations almost doubling to 2,761during the financial year 2015-16 (up to
December 31), according to the latest annual report released by the Ministry of
Corporate Affairs (MCA). The collective authorized capital of the newly regis tered
OPCs was nearly Rs 67 crore. The business services sector dominated, with 58% of
OPCs falling in this category .While OPCs enable a single proprietor to corporatize
his business, it isn't an ideal entity for startups claim experts.

3. Contd…
Lionel Charles, CEO of Indiafilings.com, says, “Venture capitalists (VCs) do not
recommend OPCs as the shares can be held by one person only and equity funding
by VCs isn't feasible. An OPC is also required to mandatorily convert into a private
company once its turnover exceeds Rs 2 crore or share capital exceeds Rs 50 lakh.“
Harish H V , partner at Grant Thornton, says, “Typically, startups have more than
one founder. They also aim at equity infusion from angel investors and VCs. Esops
are also granted to employees who ultimately hold a stake in the startup. This
makes a private company form more suitable. Moreover, a minimum share capital
of Rs 1 lakh is no longer required for incorporation, adding to their popularity .“
Government officials are of the view that the current year will see a further
increase in the number of registrations of private companies in the backdrop of the
`Startup India' programme. Recently , the govern ment carved out a separate
definition for startups and offered various sops, including a tax holiday .

4. Contd…
Eligible startups, subject to meeting certain conditions, are entitled to a tax
holiday for a block of three out of the initial five years. To claim eligibility, the
company must be incorporated between April 1, 2016 up to March 31, 2019,
its total turnover must not exceed Rs 25 crore in any financial year and it
must have obtained a certificate of eligible business from the Inter-
Ministerial Board.
An amendment to the Finance Bill added limited liability partnership (LLP) in
the definition of the term `startup'. LLPs are a hybrid model which provides
personal immunity to the partners and offers a corporate structure. In India,
professional services companies have largely adopted the LLP structure.
However, for startups, especially those looking at VC funding, an LLP
structure in not ideal in the long run.

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