India Mandates Certificate of Commencement of Business for Newly Incorporated Companies
New companies will now have to wait for a certificate of commencement to start business operations in India.
The newly announced Companies Amendment Ordinance, 2018 has re-introduced the concept of ‘Commencement of Business’, which was previously deleted by the Companies (Amendment) Act, 2015.
Under new rules, it is mandatory for all companies having a share capital – that are incorporated in India after November 2, 2018 – to obtain the commencement of business certificate before starting a business or exercising any borrowing powers.
To obtain the certificate, the director of a newly incorporated company must file a declaration (form-20 A) stating that all subscribers to the memorandum have paid the value of shares as agreed by them. The new company must also file a verification of its registered office address with the registrar of companies (RoC) within 30 days of incorporation.
Steps to obtain Certificate of Commencement of Business
- File form 20A (a declaration) and attach with it the bank account statements of the company as proof of payments for the value of share. If bank statements are not available, the company may attach valid payment proof receipts (NEFT/RTGS).
- File certificate of registration, which in case of non-banking financial institutions is issued by the Reserve Bank of India.
All these documents must be submitted along with the prescribed fee, within one hundred and eighty days of incorporation of the company.
Companies must note that the Ordinance also empowers the RoC to conduct physical verification of their registered office. It is therefore advisable to companies to maintain their legal documents such as memorandum of association, certificate of incorporation; forms along with attachments filed with RoC and its challans, and any other documents as per provision of articles of association of the company, at their registered office to avoid any non-compliance:
Consequences of non-compliance
- Penal provision
If a company fails to obtain the Certificate of Commencement of Business within the stipulated time, then, there is a penalty of Rs 50,000 (US$703) on the company and Rs 1,000 (US$14) per day up to a total of Rs 100,000 (US$1405) on every director of the company.
- Other provisions
The RoC may initiate action for the removal of the name of the company from the register of companies if he or she has a reasonable cause to believe that the company is not carrying on any business operation in the registered office.
Fee for filing e-form 20A
In the case of companies having share capital, the fee is as follows:
- Less than 100,000 – Rs 200 (US$2.8)
- Between 100,000 to 499,999 – Rs 300 (US$4.2)
- Between 500,000 to 2,499,999 – Rs 400 (US$5.6)
- Between 2,500,000 to 9,999,999 – Rs 500 (US$7)
- More than 10,000,000 – Rs 600 (US$8.4)
If the company does not have share capital, the prescribed fee for the certificate of business commencement is Rs 200 (US$2.8).