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CS Executive · Setting Up of Business, Industrial and Labour Laws · Startups and its Registration

Zenith Traders Pvt Ltd was formed by splitting off the existing trading division of Zenith Holdings Ltd, which transferred its business and assets to the new company. Zenith Traders applies for DPIIT recognition as an innovative startup. What is the likely outcome?

Recognition would be refused because an entity formed by splitting up or reconstructing an existing business is not treated as a startup. Zenith Traders took over an existing trading division, so being newly incorporated or having low turnover does not cure the defect.

  1. ARecognition is available, as the entity is newly incorporated
  2. BRecognition is available only if turnover is below Rs 100 crore
  3. CRecognition is refused, because an entity formed by splitting up or reconstructing an existing business is not treated as a startupCorrect
  4. DRecognition is available only after a 3-year waiting period

Explanation

The definition excludes an entity formed by splitting up or reconstruction of a business already in existence. Zenith Traders arose from transfer of an existing division, so it fails regardless of turnover or fresh incorporation. Turnover would matter only if the entity were otherwise eligible.

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