Section 10A of Companies Act: Ensuring Compliance and Governance

The Companies (Amendment) Bill, 2019, was passed to enhance accountability and enforcement, strengthening corporate governance norms and compliance management in the corporate sector. This bill introduced several amendments, including Section 10A as a critical addition to the Companies Act, 2013. This article explores the essentials of Section 10A in detail, ensuring businesses are aware of their obligations.

Overview of Section 10A

Section 10A of the Companies Act reinstates provisions under Section 149, extending applicability beyond public companies. The recent amendments stipulate that every company with share capital incorporated after the commencement of the Ordinance must not commence its business or exercise borrowing powers until directors file a declaration within 180 days of incorporation. This declaration requires each memorandum subscriber to pay the agreed share value. Additionally, the company's registered office must be verified by filing necessary returns with the Registrar. This measure ensures transparency and accountability right from the start.

Failure to comply with Section 10A may lead to the Registrar of Companies potentially striking off the company's name. Understanding the nuances of these requirements is crucial for new entrants.

Essential Forms: INC-20A & INC-22

After section 10 of the principal Act, the following section shall be inserted, namely:—Section 10A(1): A company incorporated after the commencement of the Companies(Amendment) Act, 2019 and having a share capital shall not commence any business or exercise any borrowing powers unless:
A declaration is filed by a director within 180 days of the date of incorporation, verified as prescribed, with the Registrar that every memorandum subscriber has paid the agreed share value; and
The company has filed with the Registrar a verification of its registered office, as provided in sub-section (2) of section 12.

Section 10A mandates every new company file e-Form INC 20A with the Registrar within 180 days post-incorporation. The director's declaration within this form confirms the payment of share value by each memorandum subscriber and verifies the registered office via Form INC-22, in compliance with Section 12(2) of the Companies Act, 2013.

Requirements for Filing Form INC 20A

To file Form INC 20A, companies need:

Payment of the share subscription amount by the subscriber.
Obtaining all essential regulatory approvals before commencing business, particularly for operations regulated by sectoral authorities like SEBI and IRDA.

Understanding these prerequisites helps in smooth processing and avoiding penalties associated with delays.

Penalties for Non-Compliance

If default occurs in complying with this section, the company faces a penalty of INR 50,000, while every defaulting officer incurs a penalty of INR 1,000 per day, up to INR 1 Lakh.

Non-compliance with Section 10A leads to severe penalties. Companies face fines up to INR 50,000, with each officer in default amassing a daily penalty of INR 1,000, capping at INR 1 Lakh. Maintaining adherence to these stringent requirements is essential for business continuity.

For more on costs and associated fees of business commencement, visit Business Certificate Fees.

Potential Consequences of Non-Declaration

In absence of a timely declaration filed with the Registrar, combined with reasonable cause to believe inactivity, the Registrar may initiate name removal from the register under Chapter XVIII.

Neglect to file the necessary declaration can prompt the Registrar to believe the company is inactive, triggering actions to remove the company's name from the register. This underscores the criticality of adherence. Companies unsure of their standing should seek professional advice to navigate these regulations, ensuring business continuity and legal compliance.

For further understanding of the business commencement process, explore our detailed insights on Commencement of Business Certificate.

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Frequently Asked Questions

Common questions about Section 10A Companies Act.

Section 10A aims to ensure accountability and better enforcement of corporate governance norms. It requires companies to file a declaration confirming that subscribers have paid for their shares and that the registered office has been verified, before commencing business operations or exercising borrowing powers.

Companies are required to file e-Form INC-20A with the Registrar of Companies within 180 days of incorporation. This form contains the director's declaration that subscribers have paid for their shares and that the registered office has been verified through Form INC-22.

Form INC-20A must be filed within 180 days from the date of incorporation of the company.

The prerequisites for filing Form INC-20A are: (1) Subscribers must have paid the value of the shares they agreed to take, and (2) The company must have filed and verified its registered office with the Registrar through Form INC-22.

If a company fails to comply with Section 10A, it shall be liable to a penalty of up to Rs. 50,000. Additionally, every officer in default shall be liable to a penalty of Rs. 1,000 per day, up to a maximum of Rs. 1 lakh.

Yes, if a company fails to file the required declaration under Section 10A within 180 days of incorporation, and the Registrar has reasonable cause to believe that the company is not carrying out any business or operations, the Registrar can initiate action to remove the company's name from the register of companies.

Section 10A applies to companies incorporated after the commencement of the Companies (Amendment) Act, 2019, and having a share capital.

The declaration required under Section 10A serves as confirmation that the subscribers have paid for their shares and that the company's registered office has been properly verified, ensuring compliance with legal requirements before commencing business activities.

No, a company cannot commence any business or exercise any borrowing powers unless it has filed Form INC-20A with the Registrar of Companies within the prescribed time limit.

No, Section 10A and the requirement to file Form INC-20A apply only to companies having a share capital, incorporated after the commencement of the Companies (Amendment) Act, 2019.