What is the Difference Between Startups and SMEs

Both startup founders and small business owners go through the same new business setup and growth curve in terms of investment and lack of a corporate structure. But their funding mechanisms are completely different, their route from idea to commercial operations is different, and their customer base is typically not the same either. 

startupLet’s start with the definitions. What is a startup, and how is it different from an SME?

The legal definition of a startup in India means an entity registered in India that has been in existence for not more than seven years, and has an annual turnover not exceeding Rs. 25 crore in any preceding financial year. The startup must also have been working towards innovation, development or improvement of products or processes or services, or it is a scalable business model with a high potential of employment generation or wealth creation.

small businessSmall and medium-sized enterprises (SMEs) are defined as small-scale units with an investment up to Rs 1 crore in plant and machinery, provided it is not owned by or controlled by a subsidiary of any other industrial undertaking. This latter condition ensures that larger corporate entities do not set up subsidiaries to get the same benefits afforded to SMEs. 

Now let’s look at the different benefits that you get as a startup or SME.

Startup Benefits

To promote startup growth and help the Indian economy, the Govt. Of India and other state and local government bodies are providing a whole array of benefits to entrepreneurs and startups.

1. Simple online startup registration

Startups can register online on the StartupIndia website and get all the benefits. Fill up a form and upload all the documents required. 

2. Easy access to funds

A Rs. 10,000 crore fund has been set up by the government to provide venture capital funding to startups. The government is also providing guarantees to lenders to encourage banks and other non-banking financial institutions (NBFCs) for providing venture capital.

3. Tax holiday for 3 years

Startups that get a certification from the Inter-Ministerial Board get an income tax exemption for the first three years.

4. Apply for tenders

Startups can also apply for government tenders, and are exempt from certain criteria that apply for other companies, such as minimum turnover requirements.

5. Tax saving for investors

Investors in the venture funds established by the Government earn capital gains exemptions. This helps startups attract investors, and promotes the growth of the startup economy in India.

Benefits for SMEs

1. Reservation

MSMEs get exclusive benefits for manufacturing of certain products, which makes them more competitive and generates employment opportunities.

2. Purchase Programme

The Government Stores Purchase Programme includes 350 items. 

3. 10% Space

SEZs (special economic zones) are required to allocate 10% space for small-scale units.

4. MSME Act

Advantages to MSMEs under the MSME Act include loans for technology upgradation, cluster development, skill development, tool rooms, manufacturing competitiveness, energy efficiency, and product quality.

5. Finance

Government of India provides SMEs assistance for obtaining finance, and companies whose post-issue face value does not exceed Rs. 25 Crores are eligible for exemptions.

StartupIndia Registration Process

1. Register your business entity

2. Check eligibility for StartupIndia registration, as per G.S.R. notification 501 (E).

3. Start your online application here.

Documents to be uploaded (in PDF format only) include a letter of recommendation / support, business incorporation or registration certificate, business description, tax benefits to be availed, and self-certification that your business satisfies certain conditions such as that your business must in India must not be more than 5 years old; annual turnover must be less than Rs. 25 crore.

Benefits of Startup Registration

The benefits of this registration include tax exemptions, patent protections, and more flexible public procurement norms.

SME Registration

Manufacturing sector SMEs need to show an investment of less than Rs.10 crores, while service sector businesses must have an investment of less than Rs.5 crores.

Benefits of SME Registration

  • Priority consideration for SME financing, and lower interest rates; and
  • Excise and direct tax exemptions; 

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