Certificate of Commencement of Business
Certificate of Commencement of Business
The Companies (Amendment) Ordinance 2018
The Companies (Amendment) Ordinance 2018 has reintroduced the concept of Certificate of Commencement of Business. Under the new Ordinance, no company will be entitled to commence its operations except by filing a declaration within 180 days of its incorporation stating that the subscribers to the Memorandum of the company has paid the value of shares so agreed by them, and files a verification of its registered office address with the Registrar of Companies (ROC) within 30 days of its incorporation. Non-compliance with this provision will result in the removal of the company’s name from the Registrar of Companies.
Commencement of Business under Companies Act, 2013 – Old Act & Procedure
Please refer to the above article for the new procedure. The following is a summary of the old procedure for reference.
Under the Companies Act 2013, the date of incorporation of a company cannot be the date of commencement of business (COB). From the point of commencement of Business, companies may be divided into 2 categories:
- Public and Private Companies not having Share Capital
A public company or a private limited company not having share capital is 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 a certificate of commencement of business from concerned Registrar of Companies before commencing the business or exercise of borrowing powers.
Through this article, we discuss the procedure for obtaining a certificate of commencement of Business under Companies Act, 2013. For statutory provisions related to commencement of Business one can refer to the following sources:
Position under Erstwhile Companies Act, 1956
Under the erstwhile Companies Act, 1956, a private company could start its business immediately upon receiving a certificate of incorporation. Private companies do not require to obtain a certificate of commencement of business from concerned Registrar of Companies under section 149 of Companies Act, 1956.
Certificate of Commencement of Business under Companies Act, 2013
A Public and Private Limited company having share capital cannot commence business until it has obtained the certificate of commencement of business (COB) from the concerned Registrar of Companies. Normally a new company will comply with the required formalities and obtain the certificate of commencement of business (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 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
- The company has filed with the Registrar a verification of its registered office as provided in sub-section (2) of section 12.
A Board resolution and Director’s declaration must prepare and file the form for obtaining a Certificate of Commencement of Business. The following are formats of the board resolution and Director’s declaration:
Commencement of Business Board Resolution Format
Commencement of Business Certificate Director Declaration
Consequences of Not Filing Certificate of Commencement of Business
- Penal Provision: As per section 11(2), if any default that is complying with the requirements of this section, the company is liable to a penalty which extends to five thousand rupees and every officer who is in default is punishable with fine which extend to one thousand rupees for every day during which the default continues.
- 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.