Commencement of Business is a Declaration by Directors of the company within 180 days of incorporation declaring that the subscribers of the company has successfully paid the value of shares as given under MOA of the company. This declaration by Directors should be annexed with the Proof of paid up of Subscription money. Every company having Share capital and incorporated on or after 2nd November 2018 is required to file eForm 20A.
Make sure that the company files eForm 20A within 180 days of incorporation, otherwise penal actions will be attracted.
Sec 11 of Companies Act 2013(Omitted w.e.f 29th May
2015) said as below;
[(1) A company having a share capital shall not commence any business or exercise any borrowing powers unless—
(a) a declaration is filed by a director in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of a private company on the date of making of this declaration; and
(b) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
(2) If any default is made in complying with the requirements of this section, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.
(3) Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.]”
Why Commencement of Business (Sec 11) omission?
In order to remove the requirement of Minimum paid up share
capital for Public and Private Limited companies, Sec 11 of Companies Act 2013
was omitted w.e.f 29th May 2015. Thereby no need to file eForm
INC 21 with Registrar of Companies w.e.f 29th May 2015
Why Commencement of Business (Sec 10A) again inserted?
Commencement of Business in Sec 10A of Companies Act 2013
comes into picture again w.e.f 2nd Nov 2018
As year 2018, has brought many changes in the laws of our
country, be it in Companies Act, SEBI Act, or FEMA Act, the changes have done a
great job to improve the efficiency and compliances by a corporate body;
One such important amendment in relation to Commencement of
Business or for exercising any borrowing power was introduced via MCA
notification dated 2nd November, 2018 by introduction of new
section 10A under Chapter II Incorporation of Company and Matters Incidental
thereto of the Companies Act, 2013
Any Company incorporated on or after 2nd November,
2018 shall mandatorily be required (For the purpose of Commencement of Business
or to exercise its borrowing powers) to;
·
File a declaration through its
director within 180 days of Incorporation stating
that the subscribers to the Memorandum have paid the value of shares subscribed
by them in the form as may be prescribed;
Kindly note that Form INC-20A i.e.
Declaration for commencement of business, has been made available w.e.f. 26th
January, 2019 at MCA (http://www.mca.gov.in/MinistryV2/companyformsdownload.html).
Documents to be attached with the eForm 20A are;
1) Signed Copy of Bank Statement showing all the credit entries
2) Declaration by Directors
Please note that the company cannot start its business activities and also exercise any borrowing powers unless Commencement of Business is filed with the Ministry of Corporate Affairs (MCA).
1) Signed Copy of Bank Statement showing all the credit entries
2) Declaration by Directors
Please note that the company cannot start its business activities and also exercise any borrowing powers unless Commencement of Business is filed with the Ministry of Corporate Affairs (MCA).
·
And is also required to file a
verification of its registered office within a period of 30 days
of its incorporation in form INC-22
There were so many questions on Non Receipt of Subscription
amount and its consequences
This introduction of Sec 10A gave clear understanding to
this question and also on number of days within which the Subscribers to MOA to
deposit their subscription amount in the company bank Account. The commencement
of Business gave insight to the time period and also the mode of payment of
Subscription amount into the Company Current Account.
What if the company fails to comply with above stated
provisions??
For Company
Penalty of Rs. 50,000/-, and
For every officer who is in default
Penalty of Rs. 1,000/- for each day during which such
default continues but not exceeding Rs. 1,00,000/-
Also, in case no declaration is filed within a period of 180
days, and the Registrar has reasonable cause to believe that the company is not
carrying on any business or operations he may subject to above penalty ,
initiate action for the removal of the name of the company from the register of
companies
Crux:-
·
Post Amendment: A time limit has been fixed, to deposit the
value of the shares subscribed by the subscribers to MOA with the company,
being 180 days,
·
Verification for the registered
office, to be filed within 30 days of incorporation, is also included as the
additional conditional for commencement of business and exercising borrowing
powers,
·
Both the
conditions have to be complied with, simultaneously,
·
If a shareholder does not deposits
such amount and the verification of registered office is not filled, then the
penalty as prescribed above shall apply,
·
Moreover the registrar has powers to
remove the name of the company from the register of companies,
·
So a company
cannot commence business or borrow, unless both the conditions are satisfied.
For MCA notification click on the link below:-
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