Summary: Subscription money after incorporation should not be viewed only through the 180-day timeline for filing Form INC-20A under Section 10A of the Companies Act, 2013. A comprehensive compliance approach requires Sections 10A, 56 and, where beneficial ownership is involved, Section 89 to be considered together. Section 56(4) requires share certificates for subscribers to the Memorandum to be delivered within two months from incorporation, making the 60-day point an important practical milestone. Where the registered owner and beneficial owner are different, Section 89 read with Rule 9 of the Companies (Management and Administration) Rules, 2014 brings MGT-4, MGT-5 and MGT-6 compliance into consideration, including the prescribed 30-day timelines. Consequently, professionals should treat 180 days as the deadline relevant to INC-20A rather than automatically treating it as a general payment window for subscription money. The post-incorporation compliance calendar should instead be planned by considering the interconnected requirements relating to receipt of subscription money, issue of share certificates, beneficial-interest declarations and commencement-of-business filing.
- A Practical Understanding of Sections 10A, 56 and 89 of the Companies Act, 2013
- 1. Section 10A – Commencement of Business
- 2. Section 56(4) – Issue of Share Certificates to Subscribers
- Practical implication
- 3. Section 89 – Where the Subscriber is a Nominee
- In Simple Terms
- What Does This Mean for Professionals?
- Conclusion
A Practical Understanding of Sections 10A, 56 and 89 of the Companies Act, 2013
A common practice followed after incorporation of a company is to advise the subscribers to the Memorandum to deposit the subscription money within 180 days from the date of incorporation, primarily because of the requirement of filing Form INC-20A under Section 10A of the Companies Act, 2013. However, looking only at Section 10A may not give a complete picture.
For proper and timely compliance, the provisions of Sections 10A, 56 and, wherever applicable, Section 89 should be read together. A combined reading of these provisions can significantly change the practical timeline within which the subscription money should be received.
1. Section 10A – Commencement of Business
Section 10A of the Companies Act, 20a13 requires a company having share capital to file a declaration in Form INC-20A within 180 days from the date of incorporation, stating that every subscriber to the Memorandum has paid the value of the shares agreed to be taken by him.
Accordingly, the company cannot file INC-20A unless the subscription money has actually been received from the subscribers.
This is where the common understanding generally arises that the subscribers have 180 days from incorporation to deposit the subscription money.
While this may appear to be the outer timeline from the perspective of Section 10A, it should not be treated as the only applicable timeline.
2. Section 56(4) – Issue of Share Certificates to Subscribers
Section 56(4) of the Companies Act, 2013 provides that a company shall deliver the certificates of all securities allotted, transferred or transmitted within the prescribed period.
In the case of subscribers to the Memorandum, the share certificates are required to be delivered within two months from the date of incorporation.
Therefore, if the company is required to issue and deliver share certificates to its subscribers within two months, the subscription process should ideally be completed sufficiently before that deadline.
Practical implication
This means that, from a comprehensive compliance perspective, waiting until the 180th day merely because INC-20A is permitted within 180 days may not be the most appropriate approach.
The professional should ensure that the subscription money is received and the corresponding allotment and share certificate formalities are completed within the applicable statutory timelines.
Thus, 60 days from incorporation becomes an important practical compliance milestone for subscribers’ subscription money and the subsequent issuance of share certificates.
3. Section 89 – Where the Subscriber is a Nominee
A further layer of compliance arises where the person whose name appears in the Register of Members is holding the shares for the benefit of another person, such as in a nominee arrangement.
In such cases, Section 89 of the Companies Act, 2013, read with Rule 9 of the Companies (Management and Administration) Rules, 2014, requires the registered owner and the beneficial owner to make the prescribed declarations regarding the beneficial interest in the shares.
The important point here is that the 30-day timeline under Section 89 relates to the making of the prescribed declarations after the beneficial interest arises/accrues which will arise after Deposit of Subscription money, and the subsequent filing of MGT-6 by the Company is linked to the date of receipt of such declaration.
Therefore, where a company is incorporated with a nominee shareholder structure, the professional should examine the Section 89 requirements right from the incorporation stage itself. The compliance should not be viewed only from the perspective of the 180-day timeline under Section 10A or the two-month timeline for delivery of share certificates under Section 56(4).
In Simple Terms
| Provision | Timeline & Compliance |
|---|---|
| Section 89 | Where registered owner and beneficial owner are different ownership Declarations required under this section should be made within the prescribed 30-day period. |
| Within 30 days of receipt of the ownership declarations Company to file MGT-6 with the Registrar of Companies. | |
| Section 56(4) | Within 2 months / 60 days of incorporation Share certificates should be issued to subscribers. |
| Section 10A. | Within 180 days of incorporation Filing of INC-20A. |
What Does This Mean for Professionals?
The above provisions demonstrate why it is not advisable to simply tell subscribers that they have 180 days to pay the subscription money merely because the company has 180 days to file INC-20A.
A professional should look at the entire chain of compliances arising after incorporation. The receipt of subscription money is the starting point for completing several consequential corporate actions, including issue of share certificates and, wherever applicable, compliance relating to beneficial ownership.
Therefore, the 180-day period under Section 10A should be viewed as the deadline for filing INC-20A and not as a general 180-day payment window for subscribers.
Where a nominee or beneficial ownership arrangement exists, the professional should additionally identify the date on which the beneficial interest arises and ensure that the Section 89 declarations and MGT-6 filing are completed within their respective statutory timelines.
Conclusion
The practical lesson is simple “DO NOT LOOK AT SECTION 10A IN ISOLATION.”
While Section 10A provides a 180-day timeline for filing INC-20A, Section 56(4) brings in the requirement of delivering share certificates to subscribers within two months from incorporation, and Section 89 may create additional compliance requirements where the registered shareholder and beneficial owner are different.
A closer look at Sections 10A, 56 and 89 reveals that the real compliance clock starts ticking much earlier than the 180-day INC-20A deadline.
