As per section 149 of Companies Act 1956, every public company and other specified companies are required to get certificate for commencement of business to start its business after getting certificate of incorporation. However, this requirement was not applicable to a private company as per section 149(7)(a) of Companies Act 1956, they can start their business after getting certificate of incorporation.
As per New Companies Act 2013, section 11 was inserted which explains that, all the companies shall get certificate for commencement of business within in specified time limit and the manner as prescribed: –
1) a declaration is to be filed by the directors 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
2) the company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
This section was omitted under The Companies (Amendment) Act, 2015 Dated 25th May 2015. This step was taken by the government for doing ease of business and reducing the time frame for incorporating a company.
In Companies (Amendment) Ordinance, 2019 Dated 14.01.2019 Ministry introduced a new section 10A which is more or less similar to section 11 of Companies Act, 2013 and section 149 of Companies Act, 1956.
Section 10A interprets: –
A company incorporated after Companies (Amendment) Ordinance, 2019 and having share capital shall not commence any business or exercise any borrowing powers unless-
a declaration is filed by a director within a period of 180 days of the date of incorporation of the company in such form and verified in Form INC-20A, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
The company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
In case of Default
Company Liability
the company shall be liable to a penalty of Rs. 50,000/-
Officer in default
liable to a penalty of Rs. 1,000/- for each day during which such default continues but not exceeding an amount of Rs. 1,00,000/-.
Action to be taken by registrar
Where 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.
Highlights in the form
Declaration given by director
- Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the company.
- All the required attachments have been completely and legibly attached to this form.
- Every subscriber to the MOA has paid the value for shares agreed to be taken by him.
- The company has filed with the registrar a verification of its registered office as provided in subsection (2) of section 12
Declaration given by professional (i.e. CS, CA, CMA)
I declare that I have been duly engaged for the purpose of certification of this form. It is hereby certified that I have gone through the provisions of the Companies Act, 2013 and Rules thereunder relevant to this form and I have verified the above particulars (including attachment(s)) from the original records maintained by the Company/applicant which is subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed.
Attachments to Form INC-20A
There is a mandatory attachment to the form which states Subscribers proof of payment for value of shares the ministry have not classified any particular attachment for the same, but a bank statement of the company could be attached hereto along with the stamped share certificates in name of subscribers to memorandum.
In case if a company is regulated by any sectoral regulator (like RBI in case of NBFI activities) a certificate of such registration is to be attached.
Conclusion
In my view the reason to insert this section was that the subscribers were not paying the value of shares agreed by them and there was many defaults regarding registered office, hence to control the same government has taken such measures and inserted this provision.
(Author can be reached at mathurassociates211@gmail.com)
From the above new provision, it means that invariably every subscriber to MOA has to pay for the value of shares that he has taken within 180 days. Otherwise penal provisions and other implications as said in Sec. 10A will be applicable.
As per 56(2) of Companies Act, within 60 days of incorporation, the company has to issue share certificates to subscribers to MOA for the value of shares they have subscribed.
Sec. 10A gives 180 days to pay the value of shares, whereas Sec. 56(2) gives 60 days to issue the share certificate.
Now the question: Suppose the subscriber pays the amount after 60 days but before 180 days,
a. Whether subscriber can pay the subscription amount after 60 days? will it violate Sec. 56(2)?
b. What is the time limit for subscriber to pay the subscribed share capital – 180 days or 60 days?
c. Whether company can issue share certificate to the subscriber without receiving the value for the shares subscribed? Will it be in compliance with provisions of Companies Act?
“Action to be taken by registrar
Where the Registrar has REASONABLE CAUSE TO BELIEVE that the company is NOT CARRYING ON ANY BUSINESS OR OPERATION, 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.”
Relying on one’s memory, according to tax cases, and to go by court’s rulings, “set up of “, should satistfy the requirement of ‘commencement of bisiness’ , for tax purposes e.g. for allowability of ”expenditure”. Given the clue, any related thoughts to spare and share, for the benefit of concerned responsible for compliance ?