Declaration of Commencement of Business - Series 487

- August 10, 2019

Declaration of Commencement of Business

MCA has inserted New Section 10A after Section 10 by Companies (Amendment) Ordinance, 2018 Dated 02.11.2018and same has been inserted in Companies (Amendment) Act, 2019.

As per 10A, a company having SHARE CAPITAL incorporated after ordinance i.e. 02.11.2018 shall not commence its business or exercise any borrowing powers unless,

§ A declaration is filed by the directors in e-form Form No. INC-20A within 180 days from date of incorporation of company with ROC that ‘every subscriber to the MOA has paid the value of the shares agreed to be taken by him”.

Quick Bite:

a. Whether company incorporated without share capital need to file declaration in form INC- 20A?

As per Section 10A this declaration of commencement of business is required to file only by Companies having Share Capital. Therefore, Company not having share capital need not to file 20A.

b. A Company incorporates on or before 02.11.2018 whether needs to file e-form INC-20A with ROC?

Section 10A came into effect 02^nd November, 2019 with prospective applicability.
Therefore, Companies incorporate before 02.11.2019 no need to file Declaration of Commencement of Business.

c. After filing of e-form INC-22A, whether ROC shall issue Certificate of Commencement of Business?

Let’s have some look on Background:

§ There was section 149 in Companies Act, 1956 which required public Company to obtain certificate of commencement of business from ROC.

§ In Companies Act, 2013 there was Section 11 which required every company to obtain certificate of Commencement of Business from ROC.

However, such section has been omitted w.e.f. 29^th May, 2015 by Companies (Amendment) Act, 2015

§ On 02.11.2018 Govt. has introduced Companies (Ordinance), 2018 and inserted section 10A “Declaration of Commencement of Business”.

Before 02.11.2018 there was sections for obtaining ‘Certificate of Commencement of Business” from ROC but section 10A states about “Declaration of Commencement of Business”.

Therefore, after filing of INC-20A Roc shall not issue any certificate of commencement of business. It is just an declaration from the Directors of Company.

d. Restriction before filing of e-form INC-20A?

§ Company can’t Commence Business.

§ Company Can’t exercise Borrowing Powers.

§ Practically MCA system not allows filing any e-form with ROC.

e. What are the consequences if company fails to file form within 180 days?

Company can file such form INC-20A with Roc even after 180 days by paying additional fees as per fees rules. However, until unless form is not filed above mentioned restrictions shall be applicable on Company.

f. What are the consequences if company commences business without filing of INC-20A?

§ Penalty on Company: the company shall be liable to a penalty of fifty thousand rupees.

§ Penalty on Officer in Default: 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

g. Whether subscription money can be received in cash from the subscribers of memorandum?

As per Companies Act, 2013 that subscription money must be received in Bank account of Company. Therefore, one can opine that Company can receive subscription money in cash also and book the same in books of accounts of Company.

Even as per section 269ST of Income Tax Act, a Company can accept maximum Rs. 200,000/- per day per person in cash.

h. What are the attachments of e-form INC-20A?

§ In case of subscription money received in Bank Account, attachment shall be copy of Bank Statement.

§ In case of subscription money received in cash, attachment shall be a declaration along with copy of books of account of Company.

i. What is the time period of issue of share certificate by the Company?

As per section 56, every company shall deliver the certificates of all securities allotted, transferred or transmitted within a period of two months from the date of incorporation, in the case of subscribers to the memorandum.

j. Section 10A allows company to receive subscription money within 180 days then how to comply with the provision of Section 56?

As per section 56: Company need to issue share certificate within 2 month of Incorporation of Company.

As per section 10A: Company can receive money within 180 days of incorporation of Company.

Note: In such case one can opine that whether subscription money received or not it is duty of Company to issue share certificates to subscribers of Memorandum of Association.

Maintenance of Registered office of Company

Addition of Sub - Section (9) after Section 12 Sub Section 8:

As per Section 12(1) A company shall, within thirty days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

By ordinance, 2018/ Amendment Act, 2019:

Registrar may do physical verification of the registered office of Company and if any default is found to be made in complying with provision of Section 12(1) (extract mentioned above). ROC may, initiate action for removal of name of Company (Strike off)

Compliance as per Section 12:

Every company shall—

(a) paint or affix its name, and the address of its registered office, in a conspicuous position, in legible letters, and

(b) if the characters employed therefore are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages;

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

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