Indian companies do not stop operating once they obtain a Certificate of Incorporation. This is particularly true for companies incorporated with share capital, for whom one essential company compliance needs to be fulfilled before the company can start to conduct business – the submission of Form INC-20A, the Declaration of Commencement of Business. The filing of this form is required under the Companies Act, 2013, and is essential for the legal operation of a newly incorporated company.
What is Form INC-20A?
Form INC-20A is a declaration which must be filed by the director of the company registered after the Companies (Amendment) Ordinance, 2019 came into effect. It is also a proof that the company has brought in all the subscription money from the subscribers of its Memorandum of Association (MoA) and the company is set to start a business.
This requirement applies only to companies incorporated with share capital. It is filed with the Registrar of Companies (ROC) via the Ministry of Corporate Affairs (MCA) portal and is included as part of the compliance checklist for every private and public limited company in India.
LEGAL MANDATE TO FILE FORM INC-20A
The statutory provisions are forms for Form INC-20A originating from Section 10A of the Companies Act, 2013, which was inserted by the Companies (Amendment) Ordinance, 2018, and subsequently reaffirmed by the 2019 amendment. As per this provision, every company limited by shares and formed after the commencement of the ordinance shall submit a declaration in a prescribed format to the ROC that all payments have been made by every subscriber to the MoA towards the value of shares agreed.
The director who makes the declaration has to do so within 180 days of the date of incorporation. Non-compliance may lead to being fined and/or affect the operational status of the company.
Importance of INC-20A and its Purpose
- INС-20A form is used to determine whether any of the objects submitted for registration in the form of INC-20A are already registered.
- The purpose of the INC-20A is predominantly to ensure that the company has actually received the capital investment it expects from its subscribers and is prepared to begin its operations. Hence this act protects from shell companies and illicit economic activities.
- It brings with it a level of authenticity and regulatory scrutiny to the company formation process in India.
- In addition to preventing these types of fraudulent activities, this mechanism also enables the government to ensure that companies’ intentions to operate are genuine and that they are not incorporated for illicit acts such as money laundering or tax evasion.
Requirements for Submitting Form INC-20A
Any company that is incorporated after the Companies (Amendment) Ordinance, 2019 and has a share capital is required to file Form INC-20A. In case of companies formed without share capital like specific segment 8 organizations or charitable trusts, it does not apply.
Once the money from the subscribers, as per the subscription agreement, has been transferred into their account and they have a registered office address filed through Form INC-22, the company is eligible to file a declaration.
Contents of Form INC-20A
The Form INC-20A includes important information like the CIN of the company, date of incorporation, and a declaration by one of the directors that the capital has been received. Furthermore, miss the bank statement to show the receipt of subscription money from an advertiser. This is to provide proof that all subscribers have paid into the company bank account as agreed.
The form needs to be digitally signed by the company’s director and certified by a practicing professional Chartered Accountant, Company Secretary or Cost Accountant.
Process to File Form INC-20A
However, once the company gets the subscription amount from its shareholders, it needs to open a bank account in its name. The amount for the subscription needs to be transferred to this account. The subsequent phase involves collecting evidence of the deposit (typically a bank statement) that would be included along with the form.
Now the director goes to the MCA portal, logs in with credentials and goes to ‘MCA Services ‘tab to enter e-filing. The form is filled with requisite details and declarations and signed with a Digital Signature Certificate (DSC). It is a professionally verified paper with DSC. An SRN (Service Request Number) is generated on successful submission of the form and that form is processed by the ROC.
If approved, the business receives a Certificate of Commencement of Business and can start operations.
Implications of Failure to Comply
If Form INC-20A is not filed within 180 days from the date of incorporation strict penalties would be imposed. In this case, the company shall pay a penalty of ₹50,000 and every officer who is held to be in default shall be liable for a penalty of ₹1,000 per day with a maximum of ₹1,00,000.
Moreover, if the Registrar has reasonable cause to believe the company is not engaged in any of its business or operations, it also has the authority to remove the name of the company from the Register of Companies on Section 248 of the Companies Act, 2013.
It is also a vital measure to safeguard the company’s legal position, hence, timely registration of this declaration is statutory and a necessity.
Relaxations and Exemptions
Companies having share capital are required to file the Form INC-20A, but few companies are exempted from this. Companies incorporated prior to the notification of the Companies (Amendment) Ordinance, 2019 are, for example, not required to file this form. Likewise, Section 10A does not apply to companies having no share capital, such companies shall also not be required to submit the declaration.
While Startups and small companies may have many exemptions under the Companies Act, 2013, they must also comply with this requirement.
Professionals in Compliance
Therefore, if a practicing professional prepares your Form INC-20A, the chances of error are minimized and the document cum application will be more valid from a legal point of view. The form is to be certified by a Chartered Accountant, Company Secretary, and Cost Accountant, and their role is very significant in saving the form from possible rejections & levying penalties.
Many development or exploitation agreements require professional verification to help build credibility that all procedural components such as banking and recordkeeping are also in place prior to commencement.
Conclusion
However, for a newly incorporated company in India with share capital, Form INC-20A is a very important statutory compliance. It confirms the company’s intention and preparedness to commence business upon receiving initial capital contributions. This requirement adds transparency to the incorporation process and makes it more difficult to create shell companies.
Proper filing of this form ensures that the company can legally do its business and ensure compliance within its prescribed timeline. The directors and stakeholders need to stay vigilant and consult with professionals to ensure that the commencement of business is smooth, on time, and compliant with the law.
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