Differences Between Startups & Small Businesses

Key Differences Between Startups & Small Business Registration in India

Online Legal India LogoBy Online Legal India Published On 31 Oct 2022 Category Company Registration

When entrepreneurs begin their journey into a certain industry, they frequently compare startups and small businesses. Without question, the phrase "startup" has developed dramatically in recent years, with individuals expressing interest in it. It has some similarities but also significant variances. Let us attempt to comprehend the article.

Startups in India

A startup is a freshly created business, generally small, founded by one or more people. A startup differs from other new businesses in that it provides a novel service or product that is not available elsewhere in the same way. The crucial word here is "innovation." The company either makes a new thing or redevelops an already existing product or service into something better.

Small Businesses in India

The Indian economy is built on small companies. According to the MSME report, India has more than 36 million small companies that employ over 80 million people. Small firms provide more than 8% of GDP, account for 45% of overall industrial output, and account for 40% of India's exports. Small companies make an enormous contribution to the economy, and the government of India acknowledges this and supports them through a variety of subsidy programmes and initiatives. This post will look at how to start a small business and also the key differences between startups and small businesses in India.

Key Differences between Startups and Small Businesses in India

The key differences between startups and small businesses in India are as follows:

  • Innovation

Startups are intended to generate innovation by adding a new feature or improving an existing product. They are built up for rapid and faultless growth in order to attract additional investors and investment rounds at various stages of development. Simultaneously, small businesses focus on fast and optimal growth in diverse ways, and they prioritise providing continuous income while keeping expenses low.

  • Fundings

Venture capital firms frequently fund businesses, and financing requires entrepreneurs to reveal growth projections and demonstrate how the anticipated investment will increase the startup's value. When pitching concepts to venture-backed enterprises, give a business plan that demonstrates how the startup may expand and increase its market value. On the other hand, small businesses do not interact with large venture capitalists whose goal is to generate investment wealth without proving high revenue estimates. As a result, banks or other lenders/small business loans provide a significant portion of the finance.

  • Risks

Startups have greater risks than small firms since developing a new product takes time and effort, whereas small businesses do not seek expansion and innovation. They use their current strategy, which is frequently difficult to work with.

  • Rate of growth

After a few years of existence, startups are on the verge of thriving. Small businesses develop quickly but only flourish if the firm reaps the benefits of their efforts.

  • Profit

It might take months or years for a startup to gain a large number of customers who can profit from its offering. If it is accomplished, the company thrives, whereas small businesses place a premium on generating income and profit from the outset.

Registration Process of Small Businesses

Small businesses can only register using their Aadhaar numbers. Furthermore, small businesses are no longer required to supply paperwork and certifications for online registration. It will be enough if applicants submit these data as a self-declaration.

The new type of registration is known as "Udyam Registration," and it is only achievable after the successful integration of the registration procedure with GST and Income Tax. Furthermore, the authorities will authenticate the self-declaration facts based on GSTIN & PAN.

Registration Process of Small Businesses as a Sole Proprietorship

A sole proprietorship is a one-person business. That one individual is solely responsible for making decisions and managing the whole firm. As a result, a small business can be registered as a sole proprietorship in the listed ways:  

SME Registration

It is preferable for small businesses to register as Small & Medium Enterprises under the MSME Act (SME). Because the government offers numerous programmes and loans with low-interest rates, it is advantageous to register as an SME, and the application may be made electronically.

A licence under the Shop & Establishment Act

According to local rules, this licence must be obtained; however, it is not necessary for every location. The municipal corporation issues this licence based on the number of employees.

Registration for GST

The person can obtain GST registration if his or her yearly turnover exceeds Rs. 40 lakhs (Rs 20 lakhs for North Eastern and mountainous areas). In addition, when conducting online commerce, the individual must get a GST number.

Small Businesses as a Partnership

A partnership is formed when 2 or more persons join forces to start a business and split the earnings. The registration procedure in the partnership business is at the option of the partners, although it is strongly advised to register in order to take advantage of registration benefits.

The partners must submit the signed application form and the payments to the state's Registrar of Firms. The following documents are necessary for the same:

  • Form 1 is a partnership registration application.
  • Affidavit evidence
  • Original certified copy of the Partnership Deed
  • Principal place of business proof, such as a lease agreement or ownership documentation
  • When the registrar is pleased with the documentation supplied, he will enter the partnership firm into the Register of Firms & issue the Registration Certificate.

Startup Registration Process in India

The registration process for startups in India involves the following steps:

Incorporation of the Business

To begin, you must incorporate your business as a Private Limited, a Partnership firm, or a Limited Liability Partnership. Then, you must follow all of the standard processes for business registration, such as submitting the registration application and getting the Certificate of Incorporation/Partnership registration.

By submitting a registration application to your region's Registrar of Companies (ROC), you can form a Private Limited or a Limited Liability Partnership (LLP). You can form a Partnership Firm by completing an application for registration with the Registrar of Firms in your region. Along with the registration application, you must submit the necessary papers & fees to the Registrar of Companies or Registrar of Firms.

Register with Startup India

The company must be incorporated as a startup company. The entire procedure is straightforward and may be completed online. Go to the Startup India website & press the 'Register' button, as seen below.

Input your name, email address, mobile phone number, and password, then click the 'Register' button.

Next, input the OTP that was delivered to your email address, as well as additional information such as the kind of user, name, & stage of the startup, and then click the 'Submit' button. The Startup India profile is established when these facts are entered.

After creating a profile on the website, companies may apply for different acceleration, incubator/mentorship programmes, and other challenges, as well as have access to resources like the Learning & Development Program, Government Schemes, State Policies for Startups, and pro-bono services.

Acquire DPIIT Recognition

Following creating a profile on the Startup India website, the next stage is to get the Department for Promotion of Industry & Internal Trade or DPIIT recognition. This recognition enables startups to benefit from advantages such as access to high-quality intellectual property services & resources, relaxation of public procurement norms, self-certification under labour and environmental laws, easy company winding, access to Fund of Funds, tax exemption for three consecutive years, and tax exemption on investment above fair market value.

Log in using the registered profile account credentials to the Startup India homepage and click on the 'DPIIT Recognition for Startups' button under the 'Schemes and Policies' tab to obtain DPIIT Recognition.

Application for Recognition

Fill in the data such as the entity details, complete address (office), authorised representative credentials, directors/partner details, information requested, startup activities, and self-certification on the 'Startup Recognition Form.' Enter each part of the form by clicking on the + symbol on the right-hand side of the form. After filling out the 'Startup Recognition Form,' agree to the terms and conditions & hit the Submit button.

Documents for Registration

  • Certificate of Incorporation/Registration of your startup
  • Proof of financing, if applicable.
  • Letter of authorisation from the authorised officials of the company registration, LLP, or partnership firm
  • Proof of concept, such as a pitch deck/website link/video (in the event of a startup in the validation/early traction/scaling stages).
  • Details on patents and trademarks, if applicable
  • List of any awards or certificates of recognition
  • PAN (Personal Identification Number)

Recognition Number

You will be assigned a recognition number for the startup when you apply. The certificate of recognition will be granted following the assessment of all of your documentation, which is normally completed within two days of submitting the information online.

However, use caution when uploading documents. If it is discovered during further verification that the appropriate documentation was not submitted, the incorrect document was posted, or a fraudulent document was uploaded, you will be fined 50% of your startup's paid-up capital, with a minimum punishment of Rs. 25,000.

Conclusion

The growth aim underlying your operations is one of the most significant distinctions between a startup and a small business. As previously said, startup founders want to dramatically affect and disrupt the present industry with their new business concept, which means they don't want to have a small, limited staff forever. According to this definition, a startup's growth aim differs from most small businesses' intent. A startup is literally formed with the goal of expansion, but this isn't always the case for a small business.


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