Certificate of Commencement of Business: Explained

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Certificate of Commencement of Business: Explained

The term ‘business’ usually refers to the regular occupation, profession or trade. For regulating the business or corporate industry, various rules and legislations as well as their amendments have been introduced in India from time to time. One such legislation is the Companies Act 2013, which mentions the definition, requirements, procedures, conditions and penalties for almost every aspect related to the incorporation, registration and functioning of a business/company in the country. 

‘Commencement of Business’ is a term which anyone owning a business is familiar with. This article mentions all that you need to know about the various procedures, requirements, forms which must be complied with for commencing a business.

According to the Companies Act, 2023’s Section 11, the directors of a company having share capital must submit a declaration to the Registrar of Companies. This declaration must assert that the signatories or subscribers to the MoA of the company have fully paid up their share. This declaration must be filed within a period of 180 days from the company’s date of incorporation. This declaration is known as Commencement of Business.

The provision of the commencement of business was adopted in the Companies Act 2013 under Section 11 from the erstwhile Companies Act of 1956. However, the same was left out in the Companies (Amendment) Act of 2015. However, Section 10A of the Companies (Amendment Ordinance), 2018 reinserted this provision to the Companies Act 2013 once again. The provision is very clear regarding its applicability with respect to the share capital. A company has to make a declaration within 180 days of its incorporation to be able to begin with its operations or exercise any other power.

Which companies are not required to file form 20A?

The Companies Act does not require certain companies to file form 20A. These companies are mentioned below:

• Companies which have been incorporated before 2nd November, 2018 (before the start of the Companies (Amendment) Ordinance, 2018)
• Companies incorporated after 2nd November, 2018 which do not have share capital.

Provisions regarding the Commencement of Business Certificate

The following are the provisions related to the issuance of the Commencement of Business Certificate:

• The company owner(s) must submit a declaration to the Registrar of Companies (ROC).
• The deadline for the submission of the declaration is 180 days, which is calculated from the date of the incorporation of the company.
• In case of failure to provide the declaration to the registrar as mandated under Section 11 of the Companies Act 2013, ROC can cancel the registered name of your business from ROC’s records.
• If the Form 20A isn’t submitted within the given time period, your incorporated company will be treated as inactive and inoperative due to which the registrar can get your company’s name removed from the official registry of ROC.
• The declaration of the directors as per section 10A must be included within Form 20A as Board Resolutions.
• A copy of the paid up share capital deposit proof must be provided by the subscribers in the form itself.
• Additionally, the company must also get registered with or approved by sectoral regulators like RBI, SEBI, etc. as per the legal requirements for its operations and activities.
• Before Form 20A gets submitted to ROC, it has to be checked and approved (signed) by an individual who practices as a Chartered Accountant, Company Secretary or the Cost Accountant.

Business Entities for which the Commencement of Business Certificate is mandatory

Newly incorporated public and private companies having share capital have to obtain a Commencement of Business Certificate from ROC, before they can start any business or exercise their borrowing rights. This is made mandatory by the law and also applies to One Person Companies.

Documents required to obtain Commencement of Business Certificate in India

In order to obtain the commencement of business certificate, you need to have the following documents in hand:

• Digital Signature Certificate 
• Registered Company’s Proof of Address
• Bank Statement of the Company which serves an evidence for payment done by subscribers or shareholders
• Registration Certificate issued by RBI, if applicable
• Consent letter or Confirmation Letter from all the Directors of the Company
• Details of the Board Resolution of the Company

Application Process for Commencement of Business Certificate

To apply for the certificate of commencement of business, you must fill Form 20A using the steps mentioned below: 

• Visit the homepage of the official website of the Ministry of Corporate Affairs (MCA). Login in to the website using a valid ID and password.
• In the next step, opt for “MCA services” then choose the “E-filing” option available on the screen. Select “Company Forms Download”
• Now in the forms list, you must find a form titled Form No. INC-20A which is the declaration form for commencement of business
• Enter the information of your company asked in the form and optionally, search for CIN using the search option available. Select CIN from the drop down menu and then complete the form.
• You can save the webform as draft in case you want to make changes or add more details in it later.
• Now, submit the web form. After the submission, SRN or a serial request number will be generated. SRN can be used for correspondence with MCA in future.
• Attach the Digital Signature Certificate’s pdf form on MCA’s website.
• Now pay the required fees mentioned on the portal. Once the verification is finished and there are no errors, you will receive an acknowledgement email.

Penalties and Consequences for non-compliance during Form Filing

In case of non-compliance while filing Form 20A, the consequences can be severe. The penalties have been made harsh in order to reduce the number of shell companies. These penalties are mentioned below:

• Penalty of Rs 50,000: This penalty will be imposed on the firm if it fails to comply with the conditions for filing the form.
• Penalty of 1,000 per day: Each such officer who is in default will be liable to pay a penalty of Rs 1,000 per day for each day that the default persists. This penalty can be imposed to a maximum of Rs 100,000.
• Striking off of the Company: The registrar can remove the company’s name from the Register of Companies if he has reasonable grounds to believe that the firm is not carrying on any business or activities even after a period of 180 days calculated from the date of incorporation.

Fee Structure for Companies with Share Capital

The table below will help you to learn about the fee structure for companies based on their nominal share capital: 

Note: Fees are subject to change, so make sure you check the official website of MCA for the latest updates regarding fees.

Additional Fees for Delayed Form Filing

If there is a delay in filing the form, the additional fees will be applicable based on the duration of the delay:

Removal of Company Name from the Registrar of Companies

In a case where no declaration has been filed within 180 days since the date of the company’s incorporation with the registrar, and the registrar justly assumes that the company isn’t involved in any business or operation, he may remove the company’s name from the register of companies.

Conclusion

Companies Act 2013 mentions the terms and conditions for all the aspects related to the incorporation, registration and functioning of a business/company in the country. ‘Commencement of Business’ is a term which anyone owning a business is familiar with. Various procedures, requirements and forms must be complied with for commencing a business. Companies Act, 2023’s Section 11 states that the directors of a company having share capital must submit a declaration to the Registrar of Companies. This declaration is known as Commencement of Business. A company has to make a declaration within 180 days of its incorporation to be able to begin with its operations or exercise any other power. If you need assistance in obtaining Commencement of Business Certificate without any hassle, connect with our team experts at Registrationwala now.

Frequently Asked Questions (FAQs)

Q1. What is Form 20A meant for?

A. It is the prescribed form required to make a declaration which is mandatory as per the Companies Act 2013’s Section 10A. The Ministry of Corporate Affairs has directed that all companies registered after the Companies (Amendment) Ordinance, 2018 after 2nd November, 2018 holding a share capital must file Form 20A for issuance of Commencement of Business Certificate. This form must be filed by all the specified companies (mentioned in this article) in order to begin their business operations and exercise their powers.

Q2. What is the time limit for obtaining the Commencement of Business Certificate by the Registrar of Companies (ROC)?

A. Form 20A must be submitted for obtaining the Commencement of Business Certificate within 180 days from the date of the newly formed company’s incorporation.

Q3. What is the penalty for not filing the Form 20A for Commencement of Business Certificate?

A. For not filing Form A, penalties will be imposed. A penalty of Rs 50,000 will be imposed on the firm if it fails to comply with the conditions for filing the form. Any officer who is in default will be liable to pay a penalty of Rs 1,000 per day for each day that the default persists. This penalty can be imposed to a maximum of Rs 100,000.

Q4. Why is filing Form 20A necessary for the companies?

A. Without filing this form, a company cannot begin with its operations legally. Also, it cannot bother any funds which are crucial in running the business. A company that has commenced its business without obtaining the necessary certificates will have to face harsh consequences such as shutting down of the company and getting its name removed by ROC.

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