Commencement of business and its provisions as per companies act, 2013

Nishant Mishra | Last updated: 22 January 2020

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Companies incorporated after the Companies (Amendment) Ordinance, 2019, must file e-Form 20A with the Registrar of Companies (ROC) within 180 days of incorporation. This declaration confirms that all subscribers to the Memorandum of Association have paid for their shares. Additionally, a verification of the registered office (e-Form 22) must be filed. Business activities cannot commence until these forms are submitted. Failure to comply can result in penalties for the company and its officers, and the ROC may even initiate the removal of the company's name from the register.

As per Section 10A Sub-Section (1) every Company incorporated after the commencement of the Companies (Amendment) Ordinance, 2019 and having a share capital shall not commence any business or exercise any borrowing power unless-

Companies Act 2013: Business Commencement Rules

A declaration is filed by a director within the period of 180 days of the date of incorporation of the Company in e-Form 20A, with the ROC that every subscriber to the MOA has paid the value of the share agreed to be taken by him on the date of making os such declaration (on date of filing e-Form 20A)
The Company has filed with ROC a verification of its Registered Office as provided under sub-section (2) Section 12 (i.e. e-Form 22).

On a plain reading of Sub Section 1 of Section 10A it is evident that the Company can only commence business and exercise borrowing power after filing of e-Form 20A and e-Form 22 to the ROC, e-Form 20 A does not signify the Commencement of Business rather any business activity can be undertaken only after filing of e-Form 20A.

It is further to be noted that in the case where any permission for the Commencement of Business is to be taken from Sectoral Regulators such as SEBI, IRDA, RBI, RERA, such permission also needs to be attached with the e-Form 20A.

In the case of default in Sub-Section 1, Sub-Section 2 will be attracted which defines the penalties to be paid by the Company and every officer liable for default.

As per Sub-Section 2, Company is liable for the penalty of Rupees 50,000 and
Every officer in default shall be liable for a penalty of Rs. 1000 per day till the default continues, however, the maximum amount shall not exceed Rs. 1.00.000.

It is further to be noted that Sub-Section 3 also empowers the ROC to initiate action for the removal of the name of the company from the register of companies under Chapter XVIII (Removal of Names of Companies From the Register of Companies)

If no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and
ROC has reason to believe that the company is not carrying on any business or operations, 01206824744

It is further to be noted that removal of name under Sub-Section 3 is without the prejudicial to the penalties that may be imposed under sub-section 2.

FAQ :

A company must file e-Form 20A with the ROC, declaring that subscribers have paid for their shares, and also file e-Form 22 verifying the registered office. This must be done within 180 days of incorporation.

e-Form 20A must be filed within 180 days of the company's incorporation.

If e-Form 20A is not filed within 180 days, the company faces a penalty of ₹50,000, and officers in default are liable for ₹1,000 per day, up to a maximum of ₹1,00,000. The ROC can also start the process to remove the company's name from the register.

No, e-Form 20A does not signify the commencement of business. Any business activity can only be undertaken after filing e-Form 20A.

Yes, if sector-specific regulators like SEBI, IRDA, RBI, or RERA need to grant permission for the commencement of business, this permission must be attached to e-Form 20A.