Commencement of Business Certificate

The Ministry of Corporate Affairs and the Companies Act 2013 work together to ensure the smooth establishment of a company in India. Since the formation of a company is a formal legal process, there are certain mandatory procedures and formalities that are required to be fulfilled to finally begin with the business operations. The initial step in the formation procedure itself differentiates a company from its owners. After being formed, the company reaps many benefits, which include the existence of perpetual succession, ownership of property, the ability to execute contracts and the right to institute or defend actions in its name. There are several business structures, like sole proprietorship, public companies, private companies and Section 8 organisations, that entrepreneurs can opt for depending on their goals and scale of operations. This process involves an application for a Director Identification Number (DIN), a Digital Signature Certificate (DSC), approval of a company name, and the presentation of the relevant documents to the Registrar of Companies to obtain incorporation and business commencement certificates. Through this, incorporation becomes mandatory for maintaining the legal requirement, thus facilitating transparency, credibility and accessibility to business in India, eventually attracting investment and encouraging entrepreneurship.

What is a Commencement of Business Certificate?

It is required under Section 10A of the Companies Act of 2013 for any business that has been registered on or after November 2, 2018, and has a share capital. This certificate is significant proof for the business to begin its operations or raise funds. The requirement has been brought to the fore for greater transparency and to prevent shell or fraudulent companies from being incorporated.

To get the certificate, the company needs to file the form INC-20A with the ROC within 180 days from the date of incorporation. The form acts as a declaration by all the Directors that each of the subscribers to the Memorandum of Association (MOA) of the company has paid all the amounts that he/she said would be paid for the shares he/she subscribed to. Further, the form is to be provided with all other required approvals by the respective regulatory authorities along with GST registration or other relevant licenses.

The certificate is significant as without this certificate; the company is not entitled to initiate its business or avail borrowings. Indeed, the punishments for not conforming range as high as 50,000 rupees to the company and 1,000 rupees per day to the directors for the defaulters, which may reach above a total of 1,000,000 rupees. The registrar shall remove the name of the company from the register in an extreme situation. This proviso also serves as a precondition toward allowing companies to begin with genuine startups and ensuring positivity toward the corporate mainstream.

When it comes to those companies for which relevance with respect to circumstances arises under the provisions of Section 10A of the Companies Act 2013, under Section 10A, there appears to be a specific certification requirement relating to getting one’s business started. Then again forward, all the incorporated companies on or after November 2, 2018, having a share capital, are mandated to get this Commencement of Business Certificate before starting a business or raising any money. This is comprised of both public and private companies with share capital. Such companies are mandated to make the application in Form INC-20A by way of a declaration to the Registrar of Companies (ROC) within 180 days of incorporation. This form definitely has to state that all subscribers to the company memorandum have paid up their subscriptions in full. Along with this, there has to be evidence of the paid-up share capital deposited in the company’s bank account, which must be proven by bank statements or a certificate from the bank. Other necessary approvals from the governing authorities, such as GST registrations or any statutory licenses, if any, should also be attached. Compliance with these conditions is necessary for the issue of the certificate and also allows the company to carry out activities legally.

Section 10A of the Companies Act 2013 exempts certain companies from the requirement to obtain a Certificate of Commencement of Business. This exemption is mainly made to relieve business entities that do not have the same operational framework or objectives. These would include not-for-profit organizations or other companies not having share capital from unnecessary compliance with merit. Thus, exemptions will depend on the peculiarities of the business or by very own distinct circumstances.

1. Companies incorporated after November 2, 2018, without share capital shall not be burdened with this certificate, as Section 10A specifically deals with share capital entities.
2. The Central Government may, by an official notification, exempt a specified category or class of companies from this requirement.
3. Exemption for companies formed prior to November 2, 2018.
4. Registrar of Companies (ROC) or any provisions accepting them may issue an exemption provided the condition with respect to the specific case under consideration or on the basis of the objective of the company.

According to the Companies (Amendment) Ordinance, 2018, every company must obtain a Certificate of Commencement of Business within 180 days from its date of incorporation. This deadline would allow legal compliance and help save a penalty, allowing the company to start its operation or borrow money legally.

Procedure to Apply for Certificate of Commencement of Business

The application procedure for a certificate of commencement of business ensures that only legal entities start business operations through a certificate of commencement of business, thus being transparent and in compliance with legal regulations. The following is the documentation required:

1. Proof of Deposit for Share Capital as a Copy of bank statement or deposit confirmation certificate of subscribed share capital.
2. Directors’ Declaration to the effect that all directors must agree to the fact that all the subscribers have paid their subscription for the shares as recorded in the MOA.
3. Licence and permissions (if required) are to be attached, as well as a copy of each license/ permission for any business undertaking like GST registration, FSSAI license, RBI registration, etc.
4. Incorporation documents such as Certificate of Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA).

Certificate of Commencement of Business is a compliance requirement for companies that are formed under the Companies Act of 2013 on or after November 2, 2018 and have share capital. The procedural application for the Form No. INC-20A can be explained as follows:

1. Go to the MCA homepage and sign in using an appropriate account.
2. Click on “MCA services,” click “E-Filing,” and then “Company Forms Download.”
3. Get Form No. INC-20A (Declaration of Business Commencement) and download.
4. Fill in the required company information.
5. Use the search option that is available to search CIN.
6. A dropdown list with an optional selection of the CIN.
7. Fill out the application form.
8. To save the web form as a draft or
9. Online submission of an application.
10. After making the submission, the SRN would be generated. All subsequent correspondences related to MCA would mention the said number.
11. Attach the DSC.
12. Upload the DSC PDF to the MCA portal.
13. Pay fees applicable as per requirement.

Once verification is completed, you will receive an email. Additionally, the SRN will be automatically cancelled in case the DSC embedded PDF is not submitted within 15 days from the date of the generation of the SRN if the payment is not executed within seven days from uploading and also the due date from the web form filling up date plus two days of the whichever is earlier.

Consequences of Non-Compliance

A certification of commencement of business could potentially subject the entity to one of the most dire legal and financial ramifications. Without certification, neither business activities would start being carried out, nor would borrowing facilities come into play for the corporation. Failure to comply raises problems about company integrity and status among stakeholders, investors and financial institutions. Thereby, continuous failure to comply may result in an even more intensified watch over other provisions under the Companies Act 2013.

It is, therefore, important to secure a Certificate of Commencement of Business in good time to avoid these penalties and avail smooth and lawful business undertakings. The specific consequences are as follows:

1. Financial Penalties – For this default, the company incurs a penalty of fifty thousand rupees. The defaulting officers will be penalised one thousand rupees for each day of default, not exceeding a limit of one hundred thousand rupees in total.
2. Removal or strike off of name of the company by ROC from the Register of Companies – If the declaration referred to in Form INC-20A is not filed within the aforementioned period of 180 days from the date of incorporation, then the ROC has the authority to pass an order for the deletion of the name of the company from the register.

Why is the Certificate of Commencement of Business Important?

A Certificate of Commencement of Business is a necessary legal obligation under the Companies Act 2013. Clear objectives were to make checks and balances so that only good intent with enough money did best comply with laws. It would ensure a transparent and sound corporate environment in future.

1. Legal Permission to Initiate Operations – The certificate is as much as authority for the company from ROC to start business operations or raise funds. Otherwise, the company cannot legally start a business.
2. Assurance of Authentic Business Intent – This certificate also averts the incorporation of shell companies or fake organisations by requiring the check for contributions of share capital from all subscribers. Only those businesses with a real purpose may then operate.
3. Compliance with Regulatory Requirements – It is the application of this certificate which indicates that the company adheres to laws and regulations. It also establishes accountability and what it wants to achieve in terms of transparency.
4. Limitation of Corporate Structure Abuse – This will show that businesses are financially sound and thoroughly prepared for business, thus increasing the chances of eliminating corporate structure misuse.
5. Elimination of Sanctions – With this application for a certificate submitted by the company within 180 days from incorporation, it will avoid heavy fines as well as the chance of being deregistered from the ROC.
6. Enhancement of Credibility – This situation makes the company more reliable for the concerned stakeholders, such as investors, financial institutions and other regulatory bodies, to allow smooth business transactions.
7. Support for Financial Operations – The certificate is necessary for companies that want to borrow funds for their operations since they cannot borrow without it.

Conclusion

Certificate of Commencement of Business is an important part of compliance that ensures that a company is both financially and legally ready to commence its operations. The document helps promote transparency, prevent potential abuse, and build confidence in the corporate environment, thus creating a well-regulated and accountable business environment.