Must Known Facts of Form INC-20A “Declaration for Commencement of Business”

The Companies (Amendment) Ordinance 2018 requires all companies registered on or after November 2, 2018, to file a certificate of the beginning of the operation. Form 20A is a declaration by the directors within 180 days of the company’s establishment. This is one of the most critical compliances to follow since the consequences for failure to file are severe. Let us discuss about Form INC-20A Declaration for Commencement of Business in detail.

Form 20A under Form INC-20A Declaration for Commencement of Business

Form 20A is a declaration that must be by the directors of the firm at the start of the business. In practice, it should be the subject validation by a Chartered Accountant (CA), a Company Secretary (CS), or a Cost Accountant.

According to Section 10A of the Companies Act, 2013, a company incorporated on or after 02/11/2018 with share capital shall not commence its business or exercise any borrowing powers unless the directors file a declaration with the Registrar of Companies within 180 days of the date of incorporation of the company in INC form 20A (notified on 26/01/2019), that ‘every subscriber to the MOA has paid the value of the shares agreed to’.

Provided, however, that in the case of a company pursuing objects that require registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities, and Exchange Board of India, and so on, such registration or approval, as the case may be, shall also be obtained and attached to the declaration.

Companies those are exempt from filing Form 20A

The following businesses are exempt from filing Form 20A:

• Companies formed before to November 2, 2018 (i.e. prior to the effective date of the Companies (Amendment) Ordinance, 2018).
• Companies formed after November 2nd, 2018 that does not have a share capital.

Procedure and Requirement for Form INC-20A Declaration for Commencement of Business

A certificate of business start must be obtained within 180 days after formation, and an E-Form must be lodged with the relevant ROC (Registrar Of Companies). A declaration from the directors is required under section 10A and must be supplied in the form of a Board Resolution in the E-Form itself. In addition, a proof of deposit of the subscriber’s paid-up share capital must be added to the E-Form. If a firm pursues objectives that need registration or permission from any sectoral regulator, such as The Reserve Bank of India or The Securities and Exchange Board of India, it must acquire such registration or approval together with the attached declaration. Before filing with the ROC, the E-Form must be reviewed and validated by a practicing professional (Registrar Of Companies).

Penalties for Failure to Comply

The consequences for non-compliance are quite harsh, which takes place for the purpose to reduce the number of shell corporations. The consequences for non-compliance are as follows:

• Penalty to be assessed on the firm: If the company fails to comply with the aforementioned condition, a penalty of Rs 50,000 would be levied on it.
• Penalty to be imposed on officers: Each such officer who is in default shall be subject to a penalty of Rs 1,000 per day for each day that the default persists, up to a maximum of Rs 100,000.
• Company strike-off: If the Registrar has reasonable reasons to think that the firm is not carrying on any business or operations, even after 180 days, the Registrar may remove the company’s name from the Register of Companies.

Applicable Fee for filing of Form 20A

Fee for submitting an E-Form for a company with share capital:

Additional fee in case of the form is not fill up within the time

The deadline for submitting Form INC-20A Declaration for Commencement of Business

Every firm has to submit Form 20A and must do so within 180 days of its establishment.

What are the Consequences of Failure to File Form 20A?

If the filing of the form does not take place on time, the following consequences will occur:

• The company is unable to borrow money.
• The company is unable to begin operations.

Points to Ponder

The following are the points that the applicant must keep in mind for filing Form 20A:

• No corporation can accept any loans, raise any funds, enter into any agreements, or make any investments before completing form INC-20A, which implies no commercial activity, can begin.
• Without completing INC-20A, a company can change the directorship if the event occurs within 180 days of the date of incorporation, but it cannot do so after the 180-day period has expired and it cannot complete form DIR-12; in this regard, the authority prospective that the company not begin any business activity has not permitted the company to change the directorship.
• Due to the failure to file Form INC-20A within 180 days or after 180 days from the date of formation, the firm do not have permission to file Form SH-7, MGT-14, in relation with charge documents, or any annual filing forms.
• A business can be remove voluntarily by completing form STK-2 if it has not follow up INC-20A within 180 days of incorporation. After 180 days of incorporation, the submission of form INC-20A is permitted first. Following that, they may submit STK-2 if they so wish, in accordance with the Act’s rules governing the Strike off procedure.
• Before submitting the INC-20A, no company changes its registered office address.
• It is also worth noting that no certificate has been generated by the authority as a result of completing this form. Only the payment receipt serves as confirmation of submission of the Form; however, we may also verify the progress of this Form by viewing public documents on MCA.

Takeaway

To summarise, this form is simply a statement made by the company to the appropriate ROC that the firm has received the subscription money from the shareholders and obtained the requisite permissions, i.e. RBI, SEBI, if applicable, and that the company has officially begun operations.

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