COMMENCEMENT OF BUSINESS

A private limited company can start its business immediately after getting the certificate of
incorporation from the Registrar of Companies

A private limited company, which has converted into limited company, is not required to
obtain any certificate for commencement of business from the Registrar of Companies before
starting a business.

Private company and a public company not having share capital, can start their business,
immediately after obtaining the certificate of incorporation from Registrar of Companies.

A public limited company having share capital, can not commence its business unless it
obtains the certificate of commencement of business from the Registrar of Companies.

Procedure for Obtaining the Certificate of Commencement of Business by a Public Limited

Company, Having Share Capital

a) WHERE A COMPANY ISSUES THE PROSPECTUS FOR PUBLIC

SUBSCRIPTION:- When a company issues the prospectus for subscription of its shares then it
must follow the following procedure for obtaining the certificate of commencement of business:-

1. Shares equal to the amount of minimum subscription have been allotted.

2. The directors must pay the amount of the shares taken by them in cash.
3. An application must be submitted to the recognized stock exchange for permission for
dealing in shares or debentures.
4. A copy of prospectus must be filed with Registrar of Companies.
5. A duly certified declaration should be given to the Registrar of Companies on a
prescribed form by a director or secretory declaring that all the conditions as mentioned from
S.No. 1 to S.No. 4, as mentioned above, have been duly fulfilled and a stamped copy should be
delivered to the Registrar.
6. Payment of prescribed filing fees, also should be made.
On completion of the said formalities, the Registrar issues the Certificate of commencement of
business to the company. Thereafter, a public company can start its business.

b) WHERE COMPANY DOES NOT ISSUES PROSPECTUS FOR PUBLIC

SUBSCRIPTION:- When a company does not issue any prospectus for subscription of shares,
then it has to follow the following procedure to get the certificate of commencement of
business:-

1. The company must file with the Registrar of Companies a statement in lieu of prospectus,
signed by each and every director
2. The company must pay the prescribed fee according to the companies act.
3. The director must pay the value of shares, taken by them, in cash.
4. A duly certified declaration should be given to the Registrar of Companies on a
prescribed form by a director or secretory declaring that all the conditions as mentioned from
S.No. 1 to S.No. 4, as mentioned above, have been duly fulfilled and a stamped copy should be
delivered to the Registrar.
5. The company must not allot any shares or debentures at least for three days after filing of
statement in lieu of prospectus with the Registrar of Companies.
On completion of the said formalities, the Registrar issues the Certificate of commencement of
business to the company. Thereafter, a public company can start its business.

Under Companies Act 2013, the date of incorporation of a company cannot be the date of
commencement of business. From the point of commencement of Business companies may be
divided into 2 categories:

1. Public and Private Companies not having Share Capital

2. Public and Private Companies having Share Capital

Public and Private Companies not having Share Capital

A private company and a public limited company not having share capital are not required to
comply with any other formalities and may commence its business activities immediately after
obtaining the certificate of incorporation from the concerned Registrar of Companies.

Public and Private Companies having Share Capital

As per section 11 of Companies Act, 2013, now all newly incorporated Public and Private
Companies having Share Capital would be required to obtain
certificate of commencement of business from concerned Registrar of Companies before
commencing the business or exercise of borrowing powers.

Through this write up we shall discuss another topic i.e. Procedure for commencement of
Business under Companies Act, 2013. For statutory provisions related to commencement of
Business one should refer the following sources:

1. Section 11 of Companies Act, 2013

Rule 24 of Companies (Incorporation) Rules, 2014

Relevant Text of Section 11 and Rule 24 are reproduced below for ready reference:

Commencement of business etc

Section 11(1), a company having a share capital shall not commence any business or exercise
any borrowing powers unless

(a) a declaration is filed by a director in such form and verified in such manner as may be
prescribed, with the Registrar 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 five lakh rupees in case of a public company and not less than one lakh rupees in case of a
private company on the date of making of this declaration; and

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

(2) If any default is made in complying with the requirements of this section, the company shall
be liable to a penalty which may extend to five thousand rupees and every officer who is in
default shall be punishable with fine which may extend to one thousand rupees for every day
during which the default continues.

(3) Where 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
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), initiate action for
the removal of the name of the company from the register of companies under Chapter XVIII.

Rule 24 of Companies (Incorporation) Rules, 2014: Declaration at the time of commencement

of business.-

The declaration filed by a director shall be in Form No.INC.21 along with the fee as and the
contents of the form shall be verified by a Company Secretary in practice or a Chartered
Accountant or a Cost Accountant in practice:

Provided that in the case of a company requiring registration from sectoral regulators such as
Reserve Bank of India, Securities and Exchange Board of India etc, the approval from such
regulator shall be required.

Position under Erstwhile Companies Act, 1956

Under the erstwhile Companies Act, 1956, a private company could start its business
immediately upon receiving certificate of incorporation. Private companies were not required to
obtain a certificate of commencement of business from concerned Registrar of Companies under
section 149 of Companies Act, 1956.

Compulsory Requirement for obtaining commencement of business certificate under

Companies Act, 2013

A Public and Private Limited company having share capital cannot commence business until it
has obtained the certificate to commence business (COB) from the concerned Registrar of
Companies. Normally a new company will comply with the required formalities and obtain the
commencement of business certificate (COB) from the Registrar as soon as possible after
formation because it cannot commence any business activities or exercise its borrowing powers
without it.
Now under Section 11 of the Companies Act, 2013, a company cannot commence business or
exercise any borrowing powers, unless

A. A declaration is filed by a director with the Registrar, to the effect 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 five lakh rupees in case of a public company and not less
than one lakh rupees in case of a private company on the date of making of this declaration; and

B. The company has filed with the Registrar a verification of its registered office as provided in
sub-section (2) of section 12.

Consequences of not filing the above declaration

1. Penal Provision: As per section 11(2), if any default is made in complying with the
requirements of this section, the company shall be liable to a penalty which may extend to five
thousand rupees and every officer who is in default shall be punishable with fine which may
extend to one thousand rupees for every day during which the default continues.

2. Removal of name from register of companies: As per section 11(3) where no declaration
has been filed with the Registrar within a period of 180 days of the date of incorporation of the
company 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 section 11(2), initiate
action for the removal of the name of the company from the register of companies under Chapter
XVIII.

ROC form filing for Commencement of business

E-form INC.21 is required to be filed with concerned Registrar of Companies for obtaining
approval for commencement of Business and exercise of borrowing powers. This E-form is
required to be filed by all companies incorporated under Companies Act 2013. Following
documents required to be filed as an attachment of form INC.21:

1. E-form INC.10 of Specimen Signature, which you would have attached with Form INC 1
at the time of incorporation.
 2. A declaration on stamp paper of Rs. 20/- signed by the directors. This stamp paper should
be in the name of the Company and you may write the following statement on this stamp
paper for stamp duty payment related compliance:

This E- Stamp paper is for E-Form INC.21 (Declaration prior to the commencement of
business or exercising borrowing powers) of __________ Private Limited.

3. Board Resolution stating that Company has received the subscription money in full, which
will be deposited into company bank account.

1. In case the affairs of the Company is regulated by any sectoral regulator (like RBI in case
of NBFI activities), Certificate of Registration issued by the RBI (Only in case of Non-
Banking Financial Companies)/ from other regulators must be attached.

You may also attach Bank Account statement as an optional attachment.

You may also attach duly certified signed minutes of First Board Meeting of the
Company as an optional attachment.

In case ROC finds INC.21, filed by the Company, in order along with all the necessary
attachments and related compliance, INC.21 shall got approved and company will get a
confirmation mail for approval of INC.21.

SECRETARIAL PRACTICE / DRAFTING

Sample Board Resolution regarding Commencement of Business

RESOLVED THAT pursuant to section 11 of the Companies Act 2013, Confirmation from the
board of Directors of the Company be and is hereby given that the Company has received the
Subscribed money in full by way of cash, which will be deposited into bank account once bank
account of the company is opened for Commencement of Business.

RESOLVED FURTHER THAT the draft of the declaration in the Form INC-21 made in
accordance with the provisions of section 11(1) of the Companies Act, 2013, as placed before the
Board duly initialed by the Chairman for the purpose of identification be and is hereby approved
and that the same be delivered to the Registrar of Companies, NCT of Delhi and Haryana for
obtaining the Certificate of Commencement of Business.
RESOLVED FURTHER THAT Mr. Manoj Bansal, Director of the Company, be and is hereby
authorised to sign the resolution and declaration and digitally sign e-Form INC.21 and file the
same with Registrar of Companies, NCT of Delhi and Haryana.

Disclaimer: This write up is intended to start academic discussion on few significant

interpretations under Companies Act, 2013. It is not intended to be a professional advice and
should not be relied upon for real time professional facts. Readers are advised to refer relevant
provision of law before applying or accepting any of the point mentioned above. Author accepts
no responsibility whatsoever and will not be liable for any losses, claims or damages which may
arise because of the contents of this write up.

Commencement of Business by a Company

A company can commence business ONLY AFTER filing a declaration with the registration with
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 less than One Lakh Rupees or Five Lakh Rupees as the case may be for Private and
Public Companies respectively.

All companies (including a Small Company and OPC) shall not start any business or exercise
any borrowing powers without filing the declaration with registrar within 180 (One Hundred and
eighty) days from the date of incorporation as stated above. The contents of this declaration shall
be also be verified by a Company Secretary or a Chartered Accountant or a Cost Accountant in
practice:

In case the declaration (Form INC 21) has not been filed by the company with the Registrar
within 180 days of the date of incorporation of the company, the Registrar may initiate action for
the removal of the name of the company from the register assuming that the company is not
carrying on any business or operations.

In order to file the required declaration, the company shall comply the following requirements
after registration;
 1. To file the Registered Office verification with Registrar of Companies within 30
days of its registration.
2. Every subscriber to the memorandum has to pay the value of the shares agreed to
be taken by him and the paid-up share capital of the company is not less than less than One
Lakh Rupees or Five Lakh Rupees as the case may be for Private and Public Companies
respectively.

The Subscribers are bound to bring the amount of shares subscribed by him to the company
before filing required declaration. To record the remittance of share subscription amount, the
company has to open a bank account and all the subscribers should bring entire subscription
money to this account before filing the declaration.
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