Before establishing any business, there are certain rules and regulations that are needed to be followed in order to ensure the smooth running of a business. Compliance with these rules gives your business a legal status and a legal identity. Also, it provides you with numerous other benefits. Certificate of commencement was one such instrument.
It was a mandatory step that had to be followed until the Companies Act, 2015 was introduced. According to the new act, it is not mandatory to obtain a certificate of commencement anymore. Now, it depends on you whether to obtain one or not.
This article discusses in brief about everything you need to know about the certificate of commencement.
The past scenario.
It was mandatory for all companies to obtain a certificate of commencement of business under the Companies Act, 2013. It was a compulsory provision for private companies with a share capital. The registrar of the joint stock companies issues the certificate.
The certificate of commencement of business was important because only after obtaining the certificate was it allowed to start any business related activities. Prior to that, it was illegal to exercise any kind of powers or benefits which come along with company registration.
Who is required to obtain a certificate of commencement?
After company registration, the companies are divided into two sections on the basis of share capital
- Private and Public Companies having share capital: According to section 11 of the Companies Act, 2013, it is mandatory for all private and public companies having a share capital to obtain a COC from the concerned Registrar of Companies before beginning with the operations.
- Private and Public Companies not having share capital: These companies are not required to comply with any other formalities after obtaining the certificate of incorporation from the Registrar of Companies.
Position under previous statutes.
The Companies Act, 1956.
Under this act, a private company could start it’s business operations immediately after obtaining the certificate of incorporation after the company registration. It was not mandatory for private companies to acquire a certificate of commencement under this act.
The Companies Act, 2013.
Under this act, both public and private companies having a share capital could not commence business before obtaining a COC from the concerned Registrar of Companies.
Under Section 11 of the Companies Act, 2013, a company cannot commence business or exercise any borrowing powers, unless,
- The director files a declaration with the Registrar confirming 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 a verification of its registered office as provided in sub-section (2) of section 12 with the Registrar.
Below is a sample of certificate of commencement for a business
How to file for a certificate of commencement?
The following steps have to be followed after the company registration.
STEP 1: e-Form 20 has to be filed (It is a declaration)
STEP 2: The statement should be attached in the prospectus of the company. A prospectus is a legal document which provides all the securities you offer to the public upon the purchase of your product in writing.
STEP 3: After that, it should be filed with a registrar.
STEP 4: A verification will take place.
STEP 5: After the verification is successful, the Certificate of Commencement is issued.
What are the documents that are required for filing the certificate of commencement?
- Proof of Identity
- Proof of Address
- Digital Signature Certificate
- Certificate of Registration issued by RBI (In case of non-banking financial institutions)
- Consent letter from all the directors
- Director declaration along with board resolution
- Prescribed fees.
An application for a COC was usually filed within 180 days of the institution of the business. If not, there were certain consequences and penalties under the Companies Act, 2013. However, in today’s date, it is not mandatory to apply for the certificate. The act of obtaining the certificate is voluntary.
What are the consequences of not obtaining a COC under the 2013 act?
- Penalty: According to section 11(2) of the act, if any default is made in complying with the section, the company is liable to pay a fine of Rs. 5000. Apart from that, the officer or officers who are liable will be punished with a fine which may extend up to Rs.1000 for every day that the default continues to occur.
- The name of the company will be removed from the Registrar of Companies: According to section 11(3) of the act, if the declaration is not filed with the registrar within 180 days of incorporation of the business, the Registrar can remove the name of the company from the register of companies under chapter XVIII.
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