Certificate of Commencement of Business

Certificate of Commencement of Business is an official document issued by the Registrar of Companies (RoC), which authorizes a company to begin its operations. This certificate is a key legal requirement under the Companies Act, 2013, particularly for public companies. It signifies that the company has met all the necessary conditions stipulated by law and can officially commence its business activities.

In India, the need for a Certificate of Commencement of Business was initially required only for public companies that issued shares to the public. However, with amendments to the Companies Act, 2013, the issuance of this certificate remains a critical step for such companies.

Requirements for Obtaining the Certificate of Commencement of Business:

Before a company can commence its business, it must fulfill several legal obligations. These requirements include:

• Incorporation of the Company:

The company must first complete the process of incorporation. This involves the submission of the necessary documents, such as the Memorandum of Association (MoA), Articles of Association (AoA), and the directors’ details to the Registrar of Companies (RoC).

• Minimum Subscription:

A public company must raise a minimum subscription for its issued shares. This ensures that there is adequate financial backing to commence business. The company must receive at least 90% of the issued capital within a specified period, as stipulated by the Companies Act, 2013.

• Filing of Declaration:

The directors of the company are required to submit a declaration stating that the minimum subscription has been received, and the company is ready to commence business. This declaration is filed with the RoC.

• Payment of Share Capital:

The company must ensure that the shareholders have paid the full amount of the subscribed capital. In the case of shares issued at a premium, the company must ensure that the premium is collected as well.

• Appointment of Statutory Auditor:

The company must appoint its first statutory auditor, who will be responsible for auditing the company’s financial statements.

• Filing with RoC:

After fulfilling the above requirements, the company must submit the necessary forms (Form 20A) to the Registrar of Companies (RoC) for approval.

Once these conditions are met and the Registrar of Companies is satisfied, the Certificate of Commencement of Business is issued. This certificate serves as official proof that the company is legally permitted to commence its business operations.

Importance of the Certificate of Commencement of Business:

• Legality of Operations:

The certificate signifies that the company has fulfilled all legal requirements to begin its business activities. Without this certificate, the company cannot engage in any commercial transactions, sign contracts, or carry out its operations.

• Investor Confidence:

Investors often rely on the Certificate of Commencement of Business to ensure that a company is in compliance with the law and is legally allowed to begin its operations. This document assures investors that their investments are secure and that the company is operational.

• Financial Security:

By obtaining the certificate, the company assures its stakeholders, including creditors and suppliers, that it has met the necessary capital requirements and is ready to begin its business activities. This adds a layer of credibility and financial stability to the company.

• Legal Compliance:

For public companies, obtaining the certificate is an essential part of complying with the Companies Act, 2013. It ensures that the company follows the regulatory framework governing business activities in India.

• Commencement of Legal Transactions:

The certificate serves as the official permission for the company to commence legal transactions. This includes signing contracts, borrowing funds, and engaging in business dealings that are crucial for the company’s success.

• Avoiding Penalties:

Failure to obtain the Certificate of Commencement of Business within the prescribed period may result in penalties or legal consequences. The company may face fines or the possibility of being struck off from the register of companies if it does not comply.

Consequences of Not Obtaining the Certificate:

If a company fails to obtain the Certificate of Commencement of Business, it cannot legally engage in any business activity. The consequences include:

• Inability to operate: The company cannot begin its business operations, sign contracts, or make transactions.
• Legal penalties: The company may be fined or even struck off from the Registrar of Companies.
• Loss of investor confidence: Lack of this certificate may cause investors to question the legitimacy of the company.