CA Paras Mehra

Imagine a scenario, where you start a business, you do a lot of hard work, and you built a very useful product (website or app) and Venture Capitalist like your product and they wanted to invest into your business. You already own a company, so they are ready to invest into the existing company. All things were going good, then suddenly you got to know that your company is not eligible to take the investment, because it has not applied the business commencement declaration to the Registrar of Companies (ROC) and therefore the company has no power to accept the investment.

Take the above para, seriously this could happen with you as well. People could say this as a bad luck, but actually it is lack of knowledge about the basic of legal part of your start up. This is a new section inserted by the new act which was earlier applicable to only Public Limited Companies, but now it is applicable to every type of company incorporated in India and also if it is not filed within 180 days from the date of incorporation, it might result in company dissolution.

What it need to start your business, an incorporation certificate from Registrar of Companies (ROC). Earlier, you might be correct, but now, mere getting your company registered is not enough, after that you will have to apply for the certificate of commencement in a form INC-21. Without applying for commencement certificate, company cannot do anything it cannot exercise any of its power like borrowing, raising investment etc. This is a very simple law, but at the same time it is very uncommon too.

What actually is Commencement Certificate?

Certificate of commencement is like filing a declaration that we have deposited out initial capital into the bank account of the company and we are now ready to start our business. The declaration should be in form INC 21 which is for Declaration prior to the commencement of business or exercising borrowing powers.

Law Governing the eForm

This form is required to be filed pursuant to Section 11 (1) (a) of the Companies Act, 2013 and Rule 24 of the Companies (Incorporation) Rules, 2014 which is reproduced for your reference:

Section 11 (1) of the Companies Act, 2013

(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

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.

(Application for Declaration prior to the commencement of business or exercising borrowing
powers)

(3) Where no declaration has been filed with the Registrar under clause (a) of subsection (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.

Rule 24 of the Companies (Incorporation) Rules, 2014 :

For the purposes of clause (a) of sub-section (1) of section 11, the declaration filed by a director shall be in Form No. INC-21 along with the fee as and the contents of the form shall be verified by a Company Secretary in practice or a Chartered Accountant or a Cost Accountant in practice.

Provided that in the case of a company requiring registration and/or approval from sectoral regulators including RBI, SEBI etc.

Purpose of the eForm – Company having share capital can commence the business and exercise its borrowing powers only after filing a declaration in eForm INC-21 and particulars of the registered office address with the concerned RoC.

eForm Number as per Companies Act, 1956 –  Under Companies Act,1956 Form 19 and 20 were required to be filed.

Who is liable to file? Any Time limit?

Every company incorporated in India is liable to file the commencement certificate within 180 days from the date of incorporation.

Serious consequences if not filed

If the commencement of business is not filed then penalty of INR 1000/- per day during the default continues. Also, it may result in company dissolution.

Therefore, it is advised to every start up to file for incorporation certificate. Follow the simple steps for filing the application for Commencement of Certificate:

  1. Download the Form INC 21 from the mca.gov.in. and fill the relevant details into the form
  2. Attach the stamp duty receipt paid at the time of incorporation.
  3. Attach the bank account statement, stating the balance minimum initial investment by the members.
  4. Sign the form with digital signatures
  5. Press the prescrutiny button and file on mca.gov.in.

However, it is always advised to take the help of any legal expert on the issue. Legal part is always important to look after and to take care off. Be cautious about your compliances, because it is your business, your hard work and therefore enjoy the journey with caution and go and win the world.

(Author is a Practicing Chartered Accountant in Delhi, Gurgaon and also a founder of www.Quickcompany.in, a leading website for registering companies online)

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0 responses to “New Loans -Commencement of Business Certificate Mandatory”

  1. Girish says:

    By amendment to companies Act, 2014, requirement of minimum paid up capital of Rs.5 Lac or Rs.1 Lac is removed. Hence commencement of business certificate should be read accordingly..Am I right?

  2. P.G.SURESH says:

    From which date the filing of declaration in Form INC 21 made mandatory & is it mandatory for existing companies too or is is applicable only for Newly registered companies. Thanks

  3. P.G.SURESH says:

    Filing of declaration in Form INC-21 is effective from which date. & whether it is applicable for existing companies or is it applicable only for the newly registered companies.

  4. vswami says:

    On a second thought: Apparently, because of the intricacies the matter entails, ICAI and ICSI, as the concerned governing bodies / regulatories, would do well, in all seriousness, to promptly make a study, if not so done by now, and be of reliably eminent guidance to the members active in the field.

  5. vswami says:

    OFFHAND

    As per Rule 24 of the Companies (Incorporation) Rules, 2014 cited above, the contents of Form No. INC-21 the “shall be verified by a Company Secretary in practice or a Chartered Accountant or a Cost Accountant in practice.”. As viewed and understood by one,the professional required to so verify has the onerous duty and responsibility to mindfully examine and fully satisfy himself about the correctness /truth of company’s claim/averment to have ‘commenced business’ at a given point in time.

    That is not going to be that easy, as made to appear. As any professional having knowledge of income-tax law needs to be aware,there has always been, and continues to be, a grave doubt and basic controversy rested on the two mutually distinct concepts namely, – ‘set up’ and ‘commencement’. The line of distinction is, however, not so distinct/visible but invariably prove so thin as to be amenable to any definitive conclusion. And plethora of case law is seen to bear out the enormity of practical problems faced with, on a case to case basis,in taking a proper and acceptable view in that respect. In such a scenario, and having that in focus, it appears to have been entirely left to the wisdom of certifying professionals to embark on an intelligent inquiry,and diligently examine, before taking ‘a view’,case-wise. Company law experts group, preferably in co-ordination and through inter-action with tax experts,perhaps,are equipped to , after deliberation, come out with specific points of useful gudance t the fraternity.

  6. apoorv rao says:

    Whether inc-21 is mandatory for existing companies also or only for new companies?

  7. CA OP SHARMA says:

    Very effective information.Whether this will also be applicable to earlier cases who have not complied this ?

  8. CA Priya says:

    Very useful. Thank you sir.

  9. Navin says:

    Whether the same is applicable for new companies or existing companies?

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