February 14, 2019

Requirement And Procedure For Obtaining Commencement Of Business Certificate

Vide Companies (Incorporation) Fourth Amendment Rules, 2018 Notification.No.F.no 1/13/2013 CL-V, Part-I, Vol, II dated 18th December 2018 and the companies (Amendment) Ordinance, 2018 dated 2nd November 2018. Companies act 2013 has reintroduced the concept which deals with the requirement of Commencement of Business Certificate.

Under the new Ordinance, no company will be allowed to commence its operations / business activities without filing a declaration with Registrar of Companies (ROC) in form INC 20A, within 180 days of its incorporation.

Here all you need to know about commencement certificate:

1. What is the Commencement of business certificate?

Commencement of Business Certificate is document which contains information regarding company. Certificate of Commencement can be obtained through Registrar of Companies (ROC) after filing a declaration that contains the information related to sharing capital which is agreed to be paid by the subscribers of the company at the time of its incorporation

2. Brief background of the commencement of business certificate?

If we talk about the old Act i.e. Erstwhile Companies Act, 1956, it said every public company having share capital were need to obtain this Commencement of business certificate and filing a declaration with the Registrar of Companies (ROC) under section 149 of Companies Act, 1956. But at that time this section was only applicable to Public Companies.

With the introduction of Companies Act 2013, a new section was introduced i.e section 11, for obtaining Certificate of Commencement of Business and filing a declaration with Registrar of Companies (ROC) for the newly incorporated Companies. This time the provisions were applicable to all companies whether private or public.

Later on Section 11, was omitted by the companies (Amendment) Act, 2015, vide Notification No. S.O. 1440(E) dated 29th May 2015 which newely formed companies can carry out business operation without obtaining commencement certificate from ROC.

3. Why Govt. felt the dire need of reintroducing the Provision.

An Ordinance is always brought forward to fulfill the need of a compelling reform or to abrogate one already in place.

Sec 10A mentioned above is the result of a similar reform.

In order to keep a tab on all the companies involved in malpractices on account of the omission of Sec 11, the ministry has felt the dire need of reintroducing the same while expanding its scope at the same time.

The corporate entities which existed only on paper without having their registered offices, giving rise to a number of scams and frauds will now come under the scanner.

As it is rightly said that Prevention is better than cure, the government is trying to tap defunct or paper companies during their incorporation rather than fishing them out subsequently.

Introduction of the aforementioned provisions regarding the Certificate of Commencement of business vide sec 10A is a welcome step taken by the Ministry of Corporate Affairs (MCA) which will be beneficial for the stakeholders as well as for the Govt. for better governance of corporate entities.

A declaration must contain the information related to share capital which is agreed to be paid by the subscribers of the company at the time of its incorporation, and also need to get its registered office address verified with the Registrar of Companies (ROC) within 30 days of its incorporation.

If the company fails to file such declaration with Registrar of companies (ROC) within 180 days from the date of incorporation, then ROC has right to believe that the Company is inoperative and may not be carrying on any operations/business activities in reality.

Non-compliance with the above-mentioned provisions will lead to the removal of the company’s name from the Registrar of Companies.

4. Who need to obtain it?

Every Public and Private Companies incorporated on or after 2nd November 2018 having Share Capital will be required to obtain a certificate of Commencement of Business and filing a declaration in Form INC 20A with Registrar of Companies (ROC) before commencing the operations/business activities.

5. Who don’t need to obtain it ?

Every Public and Private Companies not having Share Capital will not be required to obtain this certificate of Commencement of Business, they could commence their operations/business activities immediately after obtaining the certificate of incorporation (COI) from the Registrar of Companies (ROC).

6. Why it is important to obtain Commencement certificate from ROC.

If the company fails to file such declaration with Registrar of companies (ROC) within 180 days from the date of incorporation, then ROC has every right to believe that the Company is inoperative and may not be carrying on any operations/business activities in reality.

7. What are the penalties/Consequences for non filling of INC 20A

Non-compliance obtaining certificate of commencement and filling INC 20Awill lead to the removal of the company’s name from the Registrar of Companies with penalty which may extend to Rs. 5000.

The directors of the company would hold a liability of payment of Rs 1000 per day up to a maximum of Rs 1 lakh

Non filling of INC 20A may leads to striking off the company name by ROC

8. What is the current scenario ?

Currently Section 10A(1)(a) of the Companies Act, 2013 and Rule 23A of the Companies (Incorporation) Rules 2014 are dealing with this requirement, which is introduced by the Companies act Vide Companies (Incorporation) Fourth amendment Rules, 2018 Notification.No.F.no 1/13/2013 CL-V, Part-I, Vol, II dated 18th December 2018 and the companies (Amendment) Ordinance, 2018 dated 2nd November 2018. Under the new Ordinance, no company will be allowed to commence its operations / business activities without filing a declaration with Registrar of Companies (ROC)

9. How do we get this ?

First companies formed on or after 2nd November 2018 needs to file e-Form_INC-20A
Attachments which need to be filled with above mentioned form:-

Subscribers proof of payment for value of shares
Certificate of Registration issued by the RBI (Only in case of Non-Banking Financial Companies) /from other regulators

Read all about Compliance for companies registered under ROC

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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