Section 10A of the Companies(Amendment) Act 2013, the Companies Act, Certificate of Incorporation, Erstwhile Companies Act 1956

Section 11 Commencement of business, etc. [Effective from 01-04-2014 to 29-05-2015]

A company having a share capital shall not commence any business or exercise any borrowing power unless –

(a) A director files a declaration with the Registrar in such form and in such manner as may be prescribed, stating that each subscriber to the memorandum has paid the value of the shares agreed to be taken by him and that the company’s paid-up share capital is not less than five lakh rupees in the case of a public company and not less than one lakh rupees in the case of a private company on the date of this declaration.

(b) the company has filed a verification of its registered office with the Registrar, as required by section 12 sub-section (2).

(2) If the firm fails to comply with the requirements of this section, the company will be subject to a penalty of up to five thousand rupees, and each officer who is in default will be subject to a punishment of up to one thousand rupees for each day the default persists.

(3) If no declaration is filed with the Registrar under clause (a) of sub-section (1) within 180 days of the company’s incorporation date 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), take action to remove the company’s name from the register of companies under Chapter XVIII.

Commencement of Business under Companies Act, 2013

The concept of a Certificate of ‘Commencement of Business’ was first established in the Companies Act, 1956, and it was reintroduced in the Companies Act, 2013 under Section 11 of the Act. The Companies (Amendment) Act, 2015, however, excluded (deleted) section 11 with effect from May 29, 2015. Companies can be classified into two groups based on when they started doing business:

Companies with no share capital, both public and private:-

A public company or a private limited company without share capital is not necessary to follow any other procedures and may begin operating immediately after receiving a certificate of incorporation from the Registrar of Companies.

Companies with Share Capital, both public and private:-

All newly constituted Public and Private Companies with Share Capital will now be required to obtain a certificate of commencement of business from the concerned Registrar of Companies before commencing business or exercising borrowing rights, as per section 11 of the Companies Act, 2013.

Certificate of Incorporation issued under the Companies Act, 2013 –

A public or private limited company with share capital cannot start doing business until the Registrar of Companies issues a certificate of commencement of business (COB). A new company will usually complete the necessary formalities and obtain the certificate of commencement of business (COB) from the Registrar as soon as possible after formation because it will be unable to conduct business or exercise its borrowing powers without it.

Now, under Section 11 of the Companies Act, 2013, a company cannot start a business or borrow money unless a director files a declaration with the Registrar stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the company’s paid-up share capital is not less than five lakh rupees in the case of a public company and not less than one lakh rupees in the case of a private company on the date of the declaration; and

As required by section 12 sub-section (2), the firm has filed a verification of its registered office with the Registrar.

Consequences of failing to file a certificate of business start-up –

• Penal Provision: section 11(2) provides that if a corporation fails to comply with the provisions of this section, the company is responsible to a penalty of up to fifty thousand rupees, and each officer who is in default is liable to a punishment of up to one thousand rupees for each day the failure persists (maximum Rs. 1,00,000).

• Removal of name from the register of companies: Under section 11(3), if no declaration is filed with the Registrar within 180 days of the company’s incorporation date and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, the Registrar may, without prejudice to the provisions of section 11(2), initiate action to remove the company’s name from the register of companies under Chapter XVI.

• Within 180 days after its incorporation, a firm must file Form 20A, the form 20A is in STP mode, which means the eForm will be auto-approved (STP) and the Ministry of Corporate Affairs will not give a certificate.

Provision of Companies Act, 1956 –

A private company can begin doing business immediately after acquiring a certificate of establishment under the old Companies Act of 1956. Under section 149 of the Businesses Act 1956, private companies are not required to seek a certificate of commencement of business from the concerned registrar of companies.

Provision of Companies Act, 2013 –

The need of obtaining a certificate of incorporation was not included in the Companies Act of 2013, which was enacted in 2013. This has been hailed as a key component of the new Act, one that will make conducting business easier. However, the Statute now needs you to make a declaration regarding the start of your firm, which is a slightly different approach from the old act, which required you to seek a certificate from the registrar of companies.

What is Section 10a of the Companies Act? –

Section 10A of the Companies Act of 2013 was amended by the Companies (Amendment) Act 2019, which took effect on November 2, 2019. A new corporation must make a declaration in the prescribed form before it can begin doing business, according to Section 10A. With notification no. G.S.R. 1219(E) dated 18.12.2018, a new eule23A has been inserted into the Companies (Incorporation) Rules, 2014.

Section 10A states that a company with a share capital that is formed after the Companies Amendment Act, 2019 takes effect may not start a business or borrow money unless it is registered.

• A director files a declaration with the Registrar within 180 days of the company’s incorporation date, in such form and verified in such manner as may be prescribed, stating that each subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of such declaration, and the company has filed with the Registrar a verification of its registered office as provided in section 12 of the Act (2).

According to Rule 23A, a director’s declaration under section 10A must be in Form No.INC-20A and filed in accordance with the Companies (Registration Offices and Fees) Rules, 2014. In practice, a Company Secretary, a Chartered Accountant, or a Cost Accountant will verify the contents of the aforementioned document.

If a company is pursuing objectives that need registration or approval from sectoral authorities such as the Reserve Bank of India, the Securities and Exchange Board of India, or others, such registration or approval must be sought and attached to the declaration.

Arpita Maharana

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