Declaration for Commencement of Business

The Ministry of Corporate Affairs re-introduced the concept of commencement of business vide Companies (Amendment) Ordinance, 2018 dated 02.11.2018 (repealed by the Companies (Amendment) Ordinance, 2019 on 12.01.2019) that was done away with earlier. The rationale behind this long awaiting move by the Government is to ensure transparency and take hold on paper Companies.

The concept of commencement of business has been introduced in Section 10A of the Companies Act, 2013 read with Rule 23A of the Companies (Incorporation) Rules, 2014. Accordingly, every Company incorporated after 02.11.2018 and having share capital shall file a declaration in Form-20A. Further, the brief synopsis of the said section and other ancillary things are discussed below:

I. APPLICABILITY:

• Every Company having share capital
• Incorporated after 02.11.2018
  

II. RESTRICTIONS BEFORE FILING THE FORM:

• Shall not commence business
• Not exercise borrowing powers

III. TIME LIMIT FOR FILING: 180 days from the incorporation of Company

IV. WHAT HAS TO BE FILED IN FORM 20A: 

• The Company shall file a declaration by a Director 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.
• Details of registration in case the Company requires any specific approval before commencing any business from regulators like NBFC, IRDA, SEBI and others.

V. PENALTY: 

• The Company shall be liable to a penalty of fifty thousand rupees.
• Every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues up to rupees one lakh.
• The Registrar may initiate action for the removal of the name of the company from the register of companies i.e. mandatorily striking off the Company under Section 248 of the Companies Act, 2013.
  

VI. ATTACHMENTS:

• Subscribers proof of payment for value of shares i.e. bank statement
• Certificate of Registration issued by the RBI or other regulators

VII. SIGNING AND CERTIFICATION:

• The Form should be signed by any of the Director of the Company.
• It should be certified by practicing Company Secretary, Cost Accountant and Chartered Accountant.

VIII. EXEMPTION:

No exemption is provided to any Company and every Company mandatorily has to file Form 20A as discussed aforesaid.

The introduced section also indirectly answers the question as to whether subscription money be received in cash as there is no prohibition/restriction in the Companies Act, 2013 with respect to the same. But now, with introduction of Form 20A, we have to file proof of payment of subscription money and there can’t be any proof for payment of any amount in cash. Therefore, the Company mandatorily has to open a bank accounts now promoting digitalization and transparency in the economy as a whole.

{The author is a Company Secretary in Practice and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}