As per Section 3(1) of the Companies Act, 2013 (the ‘Act, 2013’), “a company may be formed for nay lawful purpose by-
(a) Seven or more person, where the company to be formed is to be a Public Company;
(b) Two or more person, where the company is to be formed is to be a Private Company; or
(c) One person, where the company to be formed is to be One Person Company that is to say, a Private Company:
by subscribing their names or his name to memorandum and complying with the requirements of this Act, in respect of registration.”
If any entity has been formed for the lawful purpose it requires capital to carry out the business. Such Capital is infused by the Individual or Corporates by subscribing the shares of the entity, such shares have a nominal value which is to be paid by the subscriber as ‘Subscription Money’. These persons are termed as ‘Subscribers’. Subscribers are also considered as first shareholders of the company and later on members of the company.
The minimum paid-up share capital requirement of Rs. 100,000 (in case of a Private Company) and Rs. 500,000 (in case of a Public Company) under the Act, 2013 has been done away by Companies (Amendment) Act, 2015 w.e.f. 29th May, 2015. Accordingly, no minimum paid-up capital requirements will now apply for incorporating private as well as public companies in India.
‘Subscribers’ are those persons whose name is entered in Memorandum of Association (‘MOA’) and by signing the MOA they are giving consent to take some number of shares of the company by contributing capital to the entity. Signing of MOA by subscribers is a contract with the company and subscription money not received from the subscriber then it will be considered as breach of contract by the subscriber and will attract civil dispute for breach of contract.
The term “Subscription Money” refers to that amount where subscriber is willing to subscribe shares of the company at a face value and need to deposits the amount in bank of the company. There is no prohibition/restriction under the Act, 2013 for receiving the subscription money in cash (i.e. not through account payee cheque or other banking channel). However, the Company and/or subscribers have to comply with the provisions of the Income Tax Act with regard to cash transaction.
Subscribers are Members:-
The definition of “Member” is given under Section 2(55) of the Act, 2013 in relation to a company, means-
(i) The subscriber to the memorandum of the company who shall be deemed to have agreed to become a member of the company, and on its registration, shall be entered as a member in its register of members.
(ii) Every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company;
(iii) Every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository.”
It is clear from the definition that subscriber will become a member on the registration of the company irrespective of the fact that subscription money is received or not.
Time limit for depositing the Subscription Money.
Earlier there was no time limit prescribed in the Act, 2013 for depositing the subscription money by the subscribers to the Company. As per the recent amendment, a Company which has been incorporated on or after 02 November 2018, shall within 180 days of incorporation required to file the declaration by the director with the Registrar of Companies (‘ROC’) stating that every subscriber to the memorandum has paid the value of shares taken by them.
The Government of India (‘GOI’) has come up with the Notification dated 02.11.2018 with regard to commencement of the Companies (Amendment) Ordinance, 2018 (“the Ordinance”). The Act, 2013 has further amended by way of passing of such ordinance on 2nd November, 2018. Declaration for COB is re-introduced by way of inserting a new Section 10A after Section 10 of the Act, 2013. Through the insertion of Section 10A of the Act, 2013, it is for the first time that some clarity has been brought in and bringing in of subscription money has been made time bound by the statute.
The text of Section 10A of the Act, 2013 are as follow;
1. A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2018 and having a share capital shall not commence any business or exercise any borrowing powers unless—
(a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company 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 on the date of making of such declaration; and
(b) the company has filed with the Registrar a verification of its registered office as provided in subsection (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 of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.
3. Where no declaration has been filed with the Registrar under clause (a) of sub-section (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.
After the above amendment, the Ministry of Corporate Affairs (‘MCA’) has further amended the Principal Rules vide Companies (Incorporation) Fourth Amendment Rules, 2018 (“the Fourth Amendment Rules”) w.e.f. 18.12.2018. According to the Fourth Amendment Rules, a new Rule 23A shall be introduced by the MCA in Principal Rules, which is also reproduced below:
“23A’ Declaration at the time of commencement of business – The declaration under section 10A by a director shall be in Form No. lNC-20A and shall be filed as provided in the Companies [Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a company Secretary or a chartered Accountant or a cost Accountant in practice:
Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.”.
According to the provisions of section 10A of the Act, 2013, as inserted by the Ordinance, the companies having share capital, which have been incorporated on after the date of commencement of the Ordinance, for the purpose of commencement of their businesses and exercise borrowing powers, are required to file a declaration within the period of 180 days from the date of incorporation by any of their director with regard to acceptance of subscription money from their subscribers.
The ordinance was come into force on 2nd November, 2018, therefore all the provisions of this section become applicable from 2nd November, 2018. Now, every company having share capital incorporated after 2nd November, 2018 has to file form 20A with 180 days i.e. before 1st May 2019.
Crux of the Provisions of Commencement of Business: –
1. The following companies are not required to file form 20A:
2. Every company required to file form 20A shall file the same within 180 days of its incorporation.
3. Non filling of form INC 20A allows ROC one additional ground to strike off the name of your Company from its Register.
4. The penalties for non-compliance are very high which has been done intentionally so as to curb out the number of shell companies incorporated. Following are the penalties for non-compliance:
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.