Company Cannot Start Business Without INC-20A & INC-22 Due to Section 10A Compliance; Why Certificate of Incorporation Alone Does Not Permit Business Operations; No Borrowing or Business Before Filing INC-20A and INC-22: Section 10A Explained; Companies Must File INC-20A Before Starting Business Due to Mandatory Section 10A Requirements; Section 10A Compliance Mandatory Before Business Commencement to Avoid ROC Penalties.
Summary: Section 10A of the Companies Act, 2013 mandates that companies having share capital cannot commence business operations or exercise borrowing powers merely upon receiving the Certificate of Incorporation. Before starting business, such companies must file Form INC-20A with the Registrar of Companies (ROC) within 180 days of incorporation, declaring that subscribers to the Memorandum of Association have paid the agreed share subscription amount. Additionally, Form INC-22 must be filed within 30 days of incorporation to confirm that the registered office is capable of receiving official communications. These requirements do not apply to companies incorporated without share capital, such as companies limited by guarantee. Non-compliance attracts a penalty of Rs. 50,000 on the company and Rs. 1,000 per day on every defaulting officer, subject to a maximum of Rs. 1,00,000. Companies should complete both filings before commencing operations or availing borrowing facilities to ensure statutory compliance and avoid penalties under Section 10A.
Introcuction
Many entrepreneurs believe that once they receive the Certificate of Incorporation, the company can immediately commence business operations and exercise borrowing powers. However, under Section 10A of the Companies Act, 2013, this is not possible for companies having share capital.
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Mandatory Conditions Before Commencing Business or Exercising Borrowing Powers
Before commencing business operations or exercising any borrowing power, a company must comply with the following conditions:
1. Filing of Form INC-20A
– To be filed with the Registrar of Companies (ROC) within 180 days from incorporation.
– This declaration confirms that the subscribers to the Memorandum of Association (MOA) have paid the subscription money for the shares agreed to be subscribed at the time of incorporation.
2. Filing of Form INC-22
– To be filed with the ROC within 30 days from incorporation.
– This form confirms that the registered office of the company is capable of receiving and acknowledging all communications and notices.
Exception
The above conditions do not apply to companies incorporated without share capital, such as a company limited by guarantee.
Penalty for Non-Compliance
Failure to comply with Section 10A may result in:
- Company: Penalty of ₹50,000
- Every Officer in Default: ₹1,000 per day during which the default continues, subject to a maximum penalty of ₹1,00,000.
Practical Situation
A newly incorporated company receives its Certificate of Incorporation and immediately starts business activities or avails a bank loan without filing INC-20A and INC-22.
Resolution
Before commencing operations or exercising borrowing powers, ensure timely filing of INC-20A and INC-22 with the ROC to avoid penalties and ensure legal compliance.
Compliance is not just a legal requirement—it is the foundation of a legally sustainable business.
Form INC-20A – Mandatory Declaration for Commencement of Business
Form INC-20A is a mandatory declaration of commencement of business required to be filed by every company having a share capital incorporated on or after 2 November 2018 under Section 10A of the Companies Act, 2013. The form must be filed with the Registrar of Companies within 180 days of incorporation after every subscriber to the Memorandum has paid the value of the shares agreed to be taken. The company must also verify that its registered office has been duly established, generally through filing Form INC-22, wherever applicable. Until Form INC-20A is filed, the company is prohibited from commencing business or exercising its borrowing powers. Failure to comply attracts penalties on the company and every officer in default, and may also lead to action for removal of the company’s name from the register if it is found not to be carrying on any business or operations.
Form INC-22 – Notice of Registered Office of the Company
Form INC-22 is prescribed under the Companies Act, 2013 for notifying the Registrar of Companies (ROC) about the company’s registered office. Every company must have a registered office capable of receiving and acknowledging communications and notices. Where the registered office is not furnished at the time of incorporation or where its address changes, Form INC-22 must be filed within the prescribed time along with the required proof of address and supporting documents. The registered office serves as the company’s official address for all statutory communications, regulatory notices, and legal proceedings. Failure to comply with the filing requirements may attract penalties under the Companies Act, 2013.
Section 10A of the Companies Act, 2013 – Commencement of Business
Section 10A of the Companies Act, 2013 lays down mandatory conditions that must be fulfilled before a company having share capital can commence business or exercise its borrowing powers. The provision requires the company to file Form INC-20A, declaring that every subscriber to the memorandum has paid the value of the shares agreed to be taken. The declaration must be filed within 180 days of incorporation. Until this requirement is fulfilled, the company cannot legally commence business or borrow funds. Non-compliance attracts monetary penalties on both the company and every officer in default and may also result in the initiation of proceedings for removal of the company’s name from the register if the company is found not to be carrying on any business or operations.
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