Ch. 4 Startups and its Registration: PYQ Decoder

June 2024Q. 1(c)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

A and B are the two experienced professionals in the Information Technology (IT) industry.

They have decided to start their own software development business. They aim to provide innovative software solutions to various businesses while fostering a culture of creativity and collaboration within their organization. As they embark on their entrepreneurial journey, they encounter various challenges and opportunities along the way.

A and B need to decide on the legal structure for their business. They are considering forming a Limited Liability Partnership (LLP) to protect their personal assets and enjoy tax benefits. They get the name, “Technical Solutions LLP” reserved by the jurisdictional Registrar. After filing the prescribed e-form, FiLLiP along with the required documents attached thereto, “Technical Solutions LLP” is registered.

“Technical Solutions LLP” requires initial capital to cover the startup costs, such as office space, equipment, and hiring employees. By leveraging a combination of personal resources, support from friends and family, investments from angel investors, crowdfunding, and strategic partnerships, A and B secure the necessary startup funds for “Technical Solutions LLP.” A and B gather the necessary documents for GST registration of “Technical Solutions LLP”. After filling the GST registration application form on the GST portal and uploading the required documents as specified in the application form, the GST Registration Certificate of “Technical Solutions LLP” is received electronically through the GST portal.

With a growing demand for its services, “Technical Solutions LLP” embarked on a phase of aggressive expansion, opening new offices in strategic locations and investing in infrastructure and technology upgrades. It introduced innovative solutions leveraging emerging technologies such as Artificial Intelligence (AI), blockchain, and cloud computing to stay ahead of the competition.

Recognizing the need for additional capital to fuel its ambitious growth plans, A and B deliberated on the possibility of converting the LLP into a private limited company to raise capital, enhance visibility, and facilitate future expansion.

After careful consideration and thorough preparation, “Technical Solutions LLP” has initiated the process of converting into a private limited company, adhering to regulatory requirements and compliance standards. The name approval for the company, “Technical Solutions Pvt. Ltd.”

has been received from the Registrar of Companies. After filing the required form along with the necessary documents, the company, Technical Solutions Pvt. Ltd. is incorporated under the Companies Act, 2013 by taking over the business of “Tech Solutions LLP”. In view of the above, answer the following :

(c)What are the key considerations for “Technical Solutions LLP” when seeking investments from angel investors to finance its operations ?

June 2025Q. 4(a)3 marksSyllabus 2022Law changed

Law changed after this attempt: The answer states eligibility as Private Limited Company or LLP only, age not more than 10 years and turnover not more than Rs 100 crore. DPIIT Notification G.S.R. 108(E) dated 4 February 2026 (superseding G.S.R. 127(E) of 2019) raised the turnover cap to Rs 200 crore, kept 10 years, added a Deep Tech Startup category (20 years, Rs 300 crore) and extended eligibility to registered partnership firms and to multi-state and State cooperative societies, with new fund-deployment restrictions (Supplement December 2026, Lesson 4). The answer below reflects the law as it stood for June 2025.

(a)What are the eligibility criteria for a start-up to apply for Angel Tax exemption after obtaining recognition ?

June 2026Q. 1(c)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Arjun, Raghav and Karan had each spent several years working in different development-sector assignments across northern India. Their work regularly brought them into contact with small community groups, informal collectives and local organizations engaged in social welfare activities. Through these interactions, they noticed that many such groups lacked structured support in areas such as documentation, compliance, financial literacy and organizational development. Although these groups were committed to their respective causes, they often struggled to maintain proper records, prepare project proposals or meet regulatory requirements. These limitations affected their ability to expand their activities or collaborate with larger institutions.

To understand the situation more clearly, the three colleagues conducted informal consultations in several districts of Uttar Pradesh, Uttarakhand and Haryana. They met with representatives of community groups, local facilitators and district-level institutions. These discussions revealed that many organizations required assistance in areas such as training, compliance awareness, documentation support and capacity building. Based on these findings, the three colleagues decided to establish a formal institution in New Delhi that could provide structured support to grassroots social-impact initiatives.

They examined various legal structures available for establishing such an institution. They considered the features of trusts, societies and companies registered under the Companies Act,

2013. After evaluating the advantages and limitations of each structure, they concluded that incorporating a company under Section 8 of the Companies Act, 2013 would be appropriate for their objectives. They believed that this structure would allow them to operate for social-development purposes while maintaining a formal governance framework.

They proposed the name Centre for Rural Development Initiatives (CRDI) for the new entity.

While initiating the incorporation process, they learned that the Ministry of Corporate Affairs (MCA) had introduced an integrated web-based system known as SPICe+ (INC 32). This system allowed applicants to complete several incorporation related activities through a single digital interface. The three colleagues prepared the required documents and submitted them through the SPICe+ system. After verification by the Registrar of Companies, CRDI was incorporated as a company under Section 8 of the Act. Arjun, Raghav and Karan became the first directors of the company.

CRDI began its operations from a rented office in New Delhi. The organization started conducting training programs, compliance-awareness sessions and documentation-support workshops for small community organizations. These programs were organized in collaboration with district-level institutions, voluntary groups and local facilitators. Over the next several months, CRDI conducted multiple capacity-building initiatives across different districts. The programs focused on areas such as record-keeping, project documentation, basic financial management and regulatory awareness. Participants expressed that such support was essential for strengthening their operations.

During one of the training programs, a participant named Sana raised a concern regarding financial challenges faced by several community organizations. She explained that many groups had applied for loans or grants from financial institutions or government schemes, but the disbursement of funds often took time. During this waiting period, the organizations faced difficulty in continuing their activities. Sana suggested that CRDI could consider helping the startups by providing guidance on the financing option of bridge round. She stated that even if CRDI did not provide funds directly, it could still support organizations by guiding them through the financial process.

The directors discussed this suggestion in detail. They reviewed the scope of activities that CRDI could undertake under its existing structure. They also consulted their legal advisor to understand the implications of providing any form of financial assistance or facilitation. The advisor explained the limitations applicable to the company and clarified the types of activities that could be undertaken without affecting its legal status. The Board considered the possibility of assisting organizations by facilitating loan documentation and connecting them with suitable financial institutions, subject to compliance with applicable laws and the company’s objects.

As CRDI continued its operations, it began receiving requests from partner organizations to undertake specialized assignments such as consultancy projects, customized training programs and capacity-building initiatives. These assignments could potentially generate revenue that would help sustain CRDI operations. However, the directors recognized that the existing structure imposed certain restrictions on undertaking revenue-generating activities. They also noted that some opportunities required a more flexible operational framework.

In view of these developments, the Board began examining whether CRDI should consider converting into a private limited company. They understood that such conversion would involve compliance with specific legal requirements, including obtaining necessary approvals, altering the company’s constitutional documents and addressing the treatment of existing assets. The directors sought legal advice to understand the implications of conversion, including the changes in regulatory obligations and the impact on the company’s long-term objectives. They decided to evaluate the matter carefully before taking any final decision.

In view of the above, answer the following :

(c)How does bridge-round funding help startups to meet their financial needs ?

June 2026Q. 3(a)3 marksSyllabus 2022

(a)Noventrix Labs Pvt. Ltd. has recently been incorporated as a new startup entity. The company has not yet applied for recognition from the Department for Promotion of Industry and Internal Trade (DPIIT). In the second board meeting, one of the directors, D, pointed out that without DPIIT recognition, the company cannot access tax benefits or funding support available to Startups.

As the Company Secretary, explain the process through which Noventrix Labs Pvt. Ltd.

can obtain Startup recognition.

December 2025Q. 4A(iv)3 marksSyllabus 2022OR, alternative to Q. 4

(iv)Differentiate between Entrepreneurship and Startup.

December 2023Q. 3(b)3 marksSyllabus 2022

(b)TKM Ltd. is a section 8 company registered under the Companies Act, 2013.

The company desires to operate the educational institutes in the State of Madhya Pradesh. The company approaches you to seek your advice on the role of Incubators for assisting entrepreneurs in building and launching their start-ups.

Draft a brief note on ‘Incubators’ as a mode of financing.

June 2025Q. 4(d)3 marksSyllabus 2022

(d)Explain the objectives of the National SC-ST Hub Scheme.

June 2025Q. 4A(i)3 marksSyllabus 2022OR, alternative to Q. 4

(i)Differentiate between the Start-up India Seed Fund Scheme (SISFS) and the Credit Guarantee Scheme for Start-ups (CGSS).

June 2024Q. 4(c)3 marksSyllabus 2022

(c)XYZ Solutions Pvt. Ltd. is a newly established technology company based in Bengaluru, India. The company specializes in developing AI-powered software solutions for healthcare providers. As part of its growth trajectory, XYZ Solutions Pvt. Ltd. is exploring the benefits available to startups under the Startup India Program. Advise the company about the benefits given to entrepreneurs establishing startups.

Start-up India is a government initiative aimed at fostering entrepreneurship and promoting innovation in India. Some of the benefits available to startups under the Start-up India program include:

1.Simplified Compliance: Startups are provided with a simplified regulatory framework, reducing the regulatory burden and allowing them to focus more on their core business activities.

2.Tax Exemption: Eligible startups can avail themselves of income tax exemption for a specified period, typically the first three consecutive years out of their first ten years of operation.

3.Self-Certification: Startups can self-certify compliance with labor and environmental laws for up to three years, reducing regulatory hassle.

4.Faster Patent Examination: Startups can expedite the patent application process through fast-track examination, reducing the time and cost involved in securing patents.

5.Access to Funding: Startups can avail themselves of various funding schemes and incentives provided by the government and other agencies to facilitate access to finance.

6.Intellectual Property Rights Support: Startups can receive support for filing and prosecuting patents, trademarks, and designs through government schemes.

7.Startup India Hub: Startups have access to an online platform, the Startup India Hub, which provides resources, networking opportunities, and mentorship support.

8.Government Procurement: Startups are given preference in government procurement, allowing them to access a significant market and gain visibility.

9.Incubation Support: Startups can benefit from incubators and accelerators supported by the government, providing infrastructure, mentorship, and networking opportunities.

10.Innovation and Research Support: Startups can access government grants and schemes aimed at promoting innovation, research, and development activities.

These benefits are aimed at creating a conducive environment for startups to thrive and contribute to economic growth and job creation in India.

XYX Solutions Pvt Ltd is advised accordingly.

Source⁠‌‌‌‌⁠: ICSI Guideline Answers, June 2024, Q. 4(c) (Syllabus 2022).

December 2025Q. 1(b)3 marksSyllabus 2022

Show the facts common to all parts of Q. 1

Ananya, a mechanical engineer, and Ritu, an environmental scientist, first met during a government- funded clean water project in Assam. Both were committed to finding practical, sustainable solutions to address the lack of safe drinking water in disaster-hit regions. After several years of collaborative research, they developed a portable solar-powered water purification unit that could be quickly deployed in areas affected by floods, cyclones, or droughts.

Encouraged by the potential of their innovation, they decided to formalize their venture. They agreed to separate the research and commercial activities into different entities to ensure that risks from experimental work would not affect the manufacturing and sales arm. For the research unit, they chose the Limited Liability Partnership (LLP) structure for its operational flexibility, limited liability protection, and ease of management compared to a private company. The incorporation process through the Ministry of Corporate Affairs (MCA) portal was smooth, and the Certificate of Incorporation was issued promptly. However, while setting up the laboratory and procuring equipment, they overlooked executing and filing the LLP Agreement within the statutory time limit.

This delay came to light when they approached a bank to open an account and the banker insisted on the LLP Agreement for KYC compliance.

For the commercial manufacturing business, they incorporated a private limited company. They applied for recognition under the Startup India initiative through the Department for Promotion of Industry and Internal Trade (DPIIT) portal to avail themselves of benefits such as income tax exemptions, access to government tenders without prior experience, and faster intellectual property processing. Their application was rejected on the grounds that the details provided in the “innovation” section were too generic and did not adequately demonstrate how the product was novel, scalable, or technologically superior to existing market solutions. Despite the setback, Ananya and Ritu continued their operations. Based on their investment in plant and machinery of ₹ 4 crore and annual turnover of ₹ 15 crore, they obtained Udyam Registration under the MSME Development Act, 2006, which classified them as a small enterprise. This registration later became significant when a large corporate customer failed to make payment for a bulk order within the agreed period. The payment delay extended beyond 50 days, creating cash flow difficulties and putting pressure on their ability to meet regular obligations such as salaries and supplier dues.

During this time, they were approached by a distributor from Singapore who expressed interest in marketing their product across Southeast Asia. After evaluating the proposal, they decided to establish a wholly owned subsidiary (WOS) in Singapore under the automatic route for overseas direct investment as permitted by the Foreign Exchange Management Act, 1999 and the Overseas Investment Rules, 2022. The Singapore entity was incorporated without difficulty, but they soon discovered that local regulations imposed ongoing requirements such as the appointment of a resident director, annual filings with the Accounting and Corporate Regulatory Authority (ACRA), and the maintenance of a registered local office. These obligations created an additional financial burden that had not been factored into their original expansion budget.

To complicate matters, the cost of importing certain critical filtration components from Germany began to rise sharply due to currency fluctuations. These unexpected expenses further reduced their working capital, forcing them to consider financial strategies to manage both domestic operations and foreign compliance costs without disrupting production.

The situation had become more complex than either of them had anticipated. Their plans for expansion were now entangled with compliance requirements, financial pressures, and strategic decisions that could not be delayed. Each choice carried its own risks, and missteps could affect both their domestic operations and their new overseas venture. As they considered the way forward, Ananya and Ritu knew that their ability to navigate the evolving legal, regulatory, and market environment would decide the long-term future of their enterprise.

In view of the above, answer the following :

(b)What important points should be considered by Ananya and Ritu before they setup their Start-up ?

December 2024Q. 4(b)3 marksSyllabus 2022

(b)Explain the concept of Life Cycle of Start-up.

The stages of a startup lifecycle are clearly demarcated owing not only to the promulgation of clarity but also to the exponential growth rate of the startup ecosystem. Each stage presents a new set off challenges and hurdles for entrepreneurs, elucidating the imperativeness of its understanding.

Largely, the startup lifecycle is segregated into 4 stages.

Stage 1: Ideation and Development The first stage of the startup lifecycle is ideation. It is categorized by the importance of testing feasibility of the products/service offered. It is at this stage that garnering a variety of opinions to further assess a business model takes precedence. Testing the potential viability of an entrepreneurs’ business can help answer larger questions about government aid, regulations and other aiding factors as the business inches to the next stage.

Stage 2: Validation Once on entrepreneur has evaluated feasibility of the idea and has highlighted broad scale business strategies, it is important to validate the product or services offered. The process involves defining goals, developing a value proposition and validating the same through customer feedback. This stage of a startup exudes high relevance as it drives the understanding of potential outcomes.

Moreover, it highlights the features as considered in the ideation stage by giving the entrepreneur viability proof through testing.

Stage 3: Early Traction It is at the Early Traction stage that a set of target customers may test efficacy of the product/ service offered validation of a product can portray definitive results to the outside world, a stage that may present its own set of challenges and visibly express revenue and cash flow. It may be helpful to iterate that a market for this product is created and developed at this stage.

The customer retention rate confirms the early traction of the company and its product. Startup acquires more customers by actively seeking funds from crowd funding agencies, angel investors or networks, incubators and seed grants from Government.

Stage 4: Growth/Exit In the fourth stage of the startup lifecycle, the company has attained true economic health, has sufficient size and product-market penetration to ensure economic success, and earns average or above-average profits. The company can stay at this stage indefinitely, provided environmental changes do not hinder its market niche or ineffective management reduce its competitive abilities.

At this stage, the company may choose to scale up or expand its market through mergers and acquisitions or preparing for an Initial Public Offering (IPO). Depending upon the strategy followed, some of the companies are successfully able to sustain the growth stage, rapidly scaling up their business to achieve valuation of more than $1 billion and become unicorns. These businesses offer ideal business for other startup across sectors and encourage them to scale up.

Source⁠‌‌‌‌⁠: ICSI Guideline Answers, December 2024, Q. 4(b) (Syllabus 2022).

June 2024Q. 4A(ii)3 marksSyllabus 2022OR, alternative to Q. 4

(ii)“While every startup has its unique journey to becoming a unicorn, the minimum and maximum time taken by a startup to become a unicorn are 6 months and 26 years, respectively.”

In light of above statement, define the term ‘unicorn’. Is a start-up different from Entrepreneurship ? Answer.