Setting up a business in India has a series of challenges and exciting milestones alike. Among these, receiving the Certificate of Incorporation is an important milestone since it officially establishes the company. If you are registering a private limited company and are unsure about the next steps, you're not alone. This guide explains everything about the Certificate of Commencement of Business, including how to file Form INC-20A and the penalties for non-compliance.
What Is the Commencement of Business?
In earlier years, incorporation was typically the last procedural step before one could begin trading. However, the reintroduction of Section 10A of the Companies Act in 2018 presents another layer of compliance. Today, with regard to companies having share capital only, obtaining this certificate is not a formality; it is an essential legal requirement.
In simple terms, the commencement of the business certificate is a statement that the directors of the company file, stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by them.
Think of it this way: when one incorporates a private limited company, the promoter gives the government an assurance that the shareholders who subscribe will invest a certain amount in cash, known as paid-up capital. The Certificate of Commencement of Business confirms that the required capital has been deposited into the company’s bank account.
Why Is a Commencement Certificate Required?
The main reason for the provision's reintroduction by the MCA was to prevent concerns regarding "shell companies." These were companies that existed on paper but did not have any funds or actual operations. The MCA commencement certificate serves as official proof issued by the Ministry of Corporate Affairs that a company is permitted to begin its business activities.
Under the certificate of commencement of the Business Companies Act 2013, specifically Section 10A, a company incorporated after November 2, 2018, having share capital, may not commence its business or exercise any borrowing powers unless it files this declaration.
Certificate of Incorporation vs Commencement
Many people often get confused between an incorporation certificate and a commencement certificate. For better clarity, here is a table that usually explains the distinction between the two documents:
Which Company Must Obtain a Certificate of Commencement of Business?
The importance of a certificate of commencement of business includes all Private Limited Company and Public Limited Company registrations. Not all companies need this certificate. The Ministry of Corporate Affairs (MCA) Commencement Certificate is needed only in the case of:
- Companies incorporated on or after November 2, 2018.
- Companies that have share capital.
If you are going to set up a company that does not have any share capital, which is pretty rare for commercial businesses, then you might be exempt from filing to get the certificate of business commencement.
For example, consider a newly formed Private Limited Company established with an authorised share capital of ₹5 Lakhs. Even if the founders are not ready to begin operations immediately, they must still file for the Certificate of Commencement of Business before starting any commercial activity or borrowing funds.
Related Reading: You can also read our article on Udyam Registration Certificate and Its Benefits for MSMEs to learn how this registration helps businesses access subsidies, credit support, and government incentives with ease.
Steps to Obtain the Declaration of Commencement of Business
Obtaining the declaration of commencement of business is an entirely online process and also involves interaction with the ROC. Here's how the typical company process workflow generally looks:
1. Opening a Bank Account
Opening a current bank account in the company's name is the first task after incorporation.
2. Deposit of Share Capital
The shareholders shall deposit subscription money (the amount they had agreed to and were supposed to pay for the shares) into this new bank account, which must be at least the paid-up capital stipulated in the MoA.
3. Preparation of Documents
The company is usually required to provide a bank statement reflecting all these credit entries. It acts as evidence that payments for the mentioned amount have been received.
4. Filing Form INC-20A
A declaration regarding the commencement of the business should be filed with the ROC through Form INC-20A. The form is to be verified and certified by a practising professional: a Chartered Accountant, Company Secretary, or Cost Accountant.
5. Approval and Issuance
On meeting the ROC filing deadlines and getting the form approved, the status of the company as reflected in the Company Master Data on the MCA portal changes to 'compliant'.
Related Reading: You can explore our guide How to Create a Project Report for a Business Loan to understand how lenders evaluate your company’s financial strength, projections, and documentation before approving credit.
Documents Required for Form INC-20A Certificate
For a smooth filing procedure for the INC-20A certificate, you will need to have the following documents readily available:
- Bank statement: A statement of the company's bank account reflecting receipt of subscription money from subscribers.
- Photo of registered office: In some cases, geotagged photos of the office, interior and exterior may be asked for as proof of the physical existence of the business itself.
- Certificate of registration: The form for the certificate of commencement of business is to be issued by the RBI (Only in the case of Non-Banking Financial Companies).
While there is no physical Certificate of Commencement of Business format that you receive as a printed document, the approval is issued digitally through the MCA portal. But for the approval of Form INC-20A, the COB certificate is needed for the certificate of commencement of business for private limited companies.
ROC Filing Deadlines and Penalties
The declaration of commencement of business has to be filed within 180 days from the date of its incorporation. You need a DIN (Director Identification Number) and PAN verification for clearing up all formalities:
Non-compliance with Section 10A of the Companies Act may result in serious consequences:
- Monetary penalty: The Company shall be liable to pay a penalty of ₹50,000. Further, every officer who is in default (such as Directors) shall be liable to pay ₹1,000 for every day during which such default continues, but not exceeding ₹1 lakh.
- Name removal: If the Registrar of Companies (ROC) has reasonable cause to believe that the company is not carrying on any business, they may initiate action to remove or strike off the company's name from the Register of Companies.
How to Download the Certificate of Commencement of Business?
Once your Form INC-20A is approved, you might want a copy for your records or to show investors. Here is how you may usually access the business license in India:
- Visit the MCA's authorised portal.
- Log in to your account, or that of the professional who filed it.
- Go to the "My Workspace" or "Track Transaction Status" section.
- Once the status shows "Approved," you can usually download the acknowledgement or challan receipt.
- You may also verify the updated status under Company Master Data on the MCA portal, which is publicly viewable and amounts to a digital proof of compliance.
Certificate of Commencement of Business: Key Takeaways
The certificate of commencement of business is the final step in post‑ incorporation compliance. It enables your company to begin operations and, subject to lender and regulatory checks, borrow money. It also ensures that you meet the statutory compliance needed to avoid penalties or being struck off by the ROC.
Once this step is completed, your business is fully ready to operate and seek financial support. If you are looking for funding to grow your enterprise, visit the Shriram Finance website for more information on business loan options.
FAQs
1. What is commencement of business?
Commencement of business means the declaration that a company has received its subscribed share capital and is legally allowed to start business operations. This declaration is submitted in Form INC 20A under Section 10A of the Companies Act 2013 as post-incorporation compliance.
2. Which company needs a certificate of commencement of business?
Every company incorporated on or after November 2, 2018, with share capital, including each private limited company and public limited company, shall obtain the certificate of commencement of business. Without share capital, companies are usually exempted from this requirement.
3. How to download the certificate of commencement of business?
Once Form INC 20A is approved, you can log in to the Ministry of Corporate Affairs authorised portal and check the approval status under Track Transaction Status. The acknowledgment and updated compliant status visible in the company master data will constitute a digital proof of the commencement certificate.
4. What is the difference between incorporation and commencement of business?
The Certificate of Incorporation gives evidence that the company legally exists, while the Certificate of Commencement of business confirms that it can begin operations and borrow funds. Incorporation brings the entity into being, while commencement gives the right to commence business activity.
5. Why is a commencement certificate required?
This certificate ensures that a company is legit and has received the required capital. It helps the government identify and prevent fake or shell companies from operating. Without this declaration, a company cannot legally commence business or exercise borrowing powers, and this may invite penalties from the Registrar of Companies.