Startups Beware: Make Sure Your Commencement Ceritificate Is In Place!

Imagine a scenario, where you start a business, you do a lot of hard work, and you built a very useful product (website or app) and Venture Capitalist like your product and want to invest into your business. You already own a company, so they are ready to invest into the existing company. All things are going good, then suddenly you get to know that your company is not eligible to take the investment, because it has not applied the business commencement declaration to the Registrar of Companies (ROC) and therefore the company has no power to accept the investment.

Take the above para, seriously this could happen with you as well. People could say this as a bad luck, but actually it is lack of knowledge about the basic of legal part of your start up.

This is a new section inserted by the new act which was earlier applicable to only Public Limited Companies, but now it is applicable to every type of company incorporated in India and also if it is not filed within 180 days from the date of incorporation, it might result in company dissolution.

Previously, to start your business, an incorporation certificate from Registrar of Companies (ROC) was enough. But now, merely getting your company registered is not enough – you will also have to apply for the certificate of commencement in a form INC-21.

Without applying for commencement certificate, a company cannot do anything, it cannot exercise any of its power like borrowing, raising investment etc. This is a very simple law, but at the same time it is very uncommon too.

What actually is Commencement Certificate?

Certificate of commencement is like filing a declaration that we have deposited out initial capital into the bank account of the company and we are now ready to start our business. The declaration should be in form INC 21.

Who is liable to file? Any Time limit?

Every company incorporated in India is liable to file the commencement certificate within 180 days from the date of incorporation.

Serious consequences if not filed

If the commencement of business is not filed then penalty of INR 1000/- per day is applicable during the default period. Also, it may result in company dissolution.

Therefore, it is advised to every start up to file for incorporation certificate. Follow the simple steps for filing the application for Commencement of Certificate:

1. Download the Form INC 21 from the www.mca.gov.in. and fill the relevant details into the form
2. Attach the stamp duty receipt paid at the time of incorporation.
3. Attach the bank account statement, stating the balance minimum initial investment by the members.
4. Sign the form with digital signatures
5. Press the pre-scrutiny button and file on mca.gov.in.

However, it is always advised to take the help of any legal expert on the issue. Legal part is always important to look after and to take care of.

Be cautious about your compliances, because it is your business, your hard work and therefore enjoy the journey with caution and go and win the world.

[box type=”shadow” ]About the Author: CA Paras Mehra is a Practicing Chartered Accountant in Delhi, Gurgaon and also a founder of www.Quickcompany.in, a leading website for registering companies online.[/box]