CERTIFICATE OF COMMENCEMENT OF BUSINESS

CERTIFICATE OF COMMENCEMENT OF BUSINESS

Introduction

All companies needed 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. Before that, it was illegal to exercise any kind of powers or benefits which come along with company registration.

The Companies (Amendment) Ordinance, 2018 promulgated on November 02, 2018 has inserted new section 10 A to provide for a declaration by a company having share capital before it commences its businesses or exercises borrowing power.

Provision for Time Limitation and Penalty on Directors

A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2018 and having a share capital shall not commence any business or exercise any borrowing powers unless:

A declaration is filed by a director within a period of 180 days of the date of incorporation of the company 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 on the date of making of such declaration; and

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

If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of Rs. 50,000 and every officer who is in default shall be liable to a penalty of Rs. 1,000 for each day during which such default continuous but not exceeding an amount of Rs. 1,00,000.

Who is required to obtain a certificate of commencement?

• 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.

Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) 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 sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.