Why to File declaration prior to commencement of business – Form INC21

Note: Section 11 has been removed from the Companies Act 2013 with the new Companies (Amendment) Act, 2015. Due to this amendment, commencement of business certificate will not be required with effect from 29th May 2015 and INC21 for this purpose is not required to be filed with ROC.

Here is the earlier provision which required filing of INC-21 which is not required now;

With the introduction of new Companies Act, 2013, now private and public limited companies having share capital are required to file declaration prior to commencement of business after getting certificate of incorporation from registrar.

Private or public limited companies not having share capita are not required to comply with this provision. This means, they may commence their business activities after obtaining certificate of incorporation.

Under the erstwhile Companies Act 1956, a private limited company having share capital had liberty to start its business after getting certificate of incorporation. They were not required to get file declaration prior to commencement of business with ROC before starting their business activities.

Today, we will discuss why and when to file declaration prior to commencement of business or compliance procedures for filing declaration in e-Form INC21 prior to commencement of business for a private and public company having share capital.

Provisions of section 11(1) (a) of Companies Act, 2013 requires that a company having a share capital shall not commence any business or exercise any borrowing power unless a declaration is filed by a director in such manner as may be prescribed with the registrar of companies stating that every subscriber to the memorandum of association has paid the value of the shares agreed to be taken by him and the paid up share capital is not less than Rs. 500000 in case of a public limited company and not less than Rs. 100000 in case of a private limited company on the date of making this declaration.

In addition to above declaration, as per section 11(1) (b) of Companies Act, 2013, the company is also required to file a declaration stating that the company has filed with the registrar a verification of its registered office as provided in sub-section(2) of section 12.

Section 11(3) of Companies Act, 2013, states that if no declaration has been filed with the registrar of companies as required under section 11(1)(a) within a period of 180 days from the date of incorporation then the registrar of companies 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 of the removal of the name of the company from the register of companies under chapter XVIII.

Rule 24 of the Companies (Incorporation and Incidental) Rules, 2014, require that such declarations are to be filed with registrar of companies in e-Form INC21 along with fee as applicable. The contents of the form shall be verified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in practice.

This means the company is required to file e-Form INC21 with the registrar of companies within 180 days from the date of incorporation along with the declarations as discussed above and a proof of situation of registered office or else company’s status shall be changed to “Struck off (Defunct)”.

As per section 11(2) of companies act 2013, if any default is made in compliance to these provisions then the company shall be liable to a penalty which may extend to Rs.5000 and every officer who is in default shall be punishable with fine which may extend to Rs. 1000 per day during which such default continues (section 11(2) of Companies Act, 2013).

While filing declaration prior to commencement of business in e-Form INC21, following documents are required to be attached with it;

• Specimen signature of all subscriber to MOA in Form INC10 – Should be certified by your banker or notarized
• A declaration printed in Rs. 20 stamp paper (based on the state of registration) – Should be signed by a director and notarized. Stamp paper should be in the name of the company.
• If the company is regulated by any sectoral regulator, then certificate of registration issued by the RBI (only in case of NBFC) or from other regulators are required to be attached.

A company can also attach certified true copy of board resolution stating that the company has received the subscription money in full and it has been deposited into company’s bank account. Bank statement and registered office address Proof with utility bills can also be attached with e-Form INC21.

The above declaration in Rs. 20 stamp paper has to be printed with following statements;

“This Stamp paper is for E-Form INC.21 (Declaration prior to the commencement of business or exercising borrowing powers) of ­your company name here.”

Or

“This stamp paper and stamp duty paid is a part of form INC21”