by The Commencement of business refers to the stage at which a newly incorporated company starts its business operations. In India, the Companies Act, 2013 lays down the provisions related to the commencement of business for companies. In this article, we will discuss the various provisions related to the commencement of business in India.
Section 11 of the Companies Act, 2013 mandates that no company shall commence any business or exercise any borrowing powers unless a declaration is filed by the directors with the Registrar of Companies (ROC) stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than the prescribed minimum.
The following are the steps involved in the commencement of business in India:
Step 1: Verification of Registered Office
Before a company can commence its business operations, it must have a registered office in India. The registered office must be verified by the ROC within 15 days of the company’s incorporation. The verification process involves submitting documents such as the rental agreement, utility bills, etc., to the ROC.
Step 2: Appointment of Statutory Auditor
As per Section 139 of the Companies Act, 2013, every company must appoint a statutory auditor within 30 days from the date of its incorporation. The auditor must hold office from the conclusion of the first annual general meeting (AGM) until the conclusion of the sixth AGM of the company.
Step 3: Issue of Shares and Payment of Subscription
Once the registered office is verified and the statutory auditor is appointed, the company must issue shares to its subscribers as per the terms mentioned in the memorandum of association. The subscribers must pay the subscription amount as agreed upon in the memorandum of association.
Step 4: Preparation of Declaration
After the payment of subscription, the directors of the company must prepare a declaration stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid-up share capital of the company is not less than the prescribed minimum. The declaration must be signed by all the directors of the company.
Step 5: Filing of Declaration with ROC
The declaration prepared by the directors must be filed with the ROC within 180 days from the date of incorporation of the company. The declaration must be filed in Form INC-20A along with the following documents:
- Board resolution authorizing the filing of declaration;
- Copy of the bank statement showing receipt of the subscription amount;
- A certificate from a practicing professional certifying the receipt of the subscription amount; and
- Any other document required by the ROC.
Step 6: Obtaining Certificate of Commencement of Business
After the declaration is filed with the ROC, the ROC will verify the documents and, if everything is in order, issue a Certificate of Commencement of Business. The certificate is proof that the company has complied with the provisions of the Companies Act, 2013, and is authorized to commence its business operations.
Penalties for Non-Compliance
If a company commences its business operations without filing the declaration with the ROC or if it furnishes false information in the declaration, the company and every officer in default shall be liable to a penalty which may extend to five thousand rupees for every day during which the default continues.
