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The Tax Publishers Procedure for Obtaining Certificate of Commencement of Business by Company with Share Capital not having Issued Prospectus A. INTRODUCTORY NOTE It is incumbent upon a public limited company to obtain a certificate of commencement of business before commencing business or exercising borrowing powers. In the previous Chapter 9, the procedure for obtaining certificate of commencement of business by a public company having share capital and having issued a prospectus was discussed. In this Chapter, the procedure to be followed for obtaining commencement of business by a company having a share capital, but not having issued a prospectus inviting public to subscribe to its shares but has issued a statement in lieu of prospectus is discussed. As mentioned in Chapter 9, the provisions mentioned in this Chapter shall not be applicable to the private company or to a company registered before 1-4-1914, which has not issued a prospectus inviting the public to subscribe to its shares. B. PAYMENT OF SHARE MONEY BY DIRECTORS It should be ensured that every director of the company has paid to the company, on each of the share taken or agreed to take and for which, the director is liable to pay in cash, a proportion equal to the proportion payable on application and allotment of shares offered for public subscription. C. STATEMENT IN LIEU OF PROSPECTUS It has to be ensured that the statement in lieu of prospectus has been prepared in conformity with Schedule III of the Companies Act, 1956. While preparing the above statement the following conditions should e complied with : (i) The statement in lieu of prospectus duly prepared in conformity with Part I of Schedule III of the Companies Act, 1956 and, in cases mentioned in Part II of that Schedule setting out the reports specified their, and the said parts I and II shall have effect subject to the provisions of Part III of that Schedule. The adjustment made should be duly verified and certified by the authorised signatory deriving authority from the board of directors. [Section 70(1)]. (ii) Every statement in lieu of prospectus delivered under sub-section (1), shall, where the persons making any such report as aforesaid have made thereon or have without giving the reasons, indicated therein, any such adjustments as are mentioned in clause 5 of the Schedule III, have endorsed thereon or attached thereto a written statement signed by those persons, setting out the adjustments and giving the reasons, thereof. [Section 70(2)] (iii) The provisions are not applicable to a private company. [Section 70(3)] (iv) If, a company acts in contravention of sub-section (1) or (2), the company and every director of the company who wilfully authorises or permits the contravention, shall be punishable with fine which may extend to ten thousand rupees. [Section 70(4)] (v) Where a statement in lieu of prospectus delivered to RoC under sub-section (1) includes any untrue statement, any person, who authorised the delivery of the statement in lieu of prospectus for registration shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to Rs. 50,000 or both. (vi) The statement in lieu of prospectus should be signed by every person named therein as director or proposed director or by agent duly authorised by him in writing. D. BOARD RESOLUTION A Board Resolution should be passed for-- (i) obtaining certificate of commencement of business, (ii) approving the statement in lieu of prospectus, and (iii) filing e-Form 20. E. TIME LIMIT FOR OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS No time limit. However, non-obtaining of certificate of commencement of business within one year from the date of incorporation of the company would constitute a ground for winding up of the company by court under section 433(c) of the Companies Act, 1956. F. ELECTRONIC FILING OF e-FORM 20 e-Form 20 showing the declaration of compliance with the provisions of section 149(2)(b) of the Companies Act, 1956 should be filed through MCA portal, www.mca.gov.in. 1. Who can file e-Form 20 ? The e-Form 20 should be filed by a person who has been authorised by the Board of director, such as managing director, director, manager or secretary. 2. Attachments The following documents should accompany e-Form 20 : (i) Board resolution approving the filing of e-Form and the statement in lieu of prospectus. (ii) Statement in lieu of prospectus. 3. How to attach ? The attachment shall be in PDF format. A physical document should be converted into an electronic document through scanning. A soft copy may also be converted into PDF format and used as an attachment to e-Form. 4. Digital Signature All the documents including e-Form 20 should be digitally signed by a director or secretary. Such person should hold a valid Digital Signature Certificate (DSC) and should have an authority to sign the documents on behalf of the company through a Board resolution. 5. Filing Fee Filing fee is to be paid in accordance with the authorised capital of the company, as per Schedule X of the Companies Act, 1956. 6. Stamp Duty The declaration in e-Form 19 should be duly stamped in accordance with the stamp duty prevailing in the State in which registered office of the company is situated. G. MODE OF PAYMENT 1. The fee can be paid through one of the specified modes, viz., remittance in authorised banks, credit cards or through internet banking. In case of online payment, filing process shall be complete immediately. 2. When payment is tendered through authorised bank (Punjab National Bank, State Bank of India, Indian Bank, ICICI Bank and HDFC Bank), a pre-filled challan (GAR-7) containing SRN, date of challan, expiry date, name and designation of user by whom challan is tendered, name and address of the company, particulars of remittance, total amount and head of account shall be generated by the system. The challan should be used for making payment before the date of expiry mentioned therein and the transaction shall be completed by the concerned banks. H. EFFECT OF NON-PAYMENT BEFORE DUE DATE Note, if payment is not made by the date mentioned on the challan, the submission of form shall be treated as incomplete and message through e-mail will be received that form cannot be regarded as filed due to non-payment. Status of application and payment can be verified through MCA portal. I. PHYSICAL SUBMISSION OF DOCUMENTS AND e-FORM 20 Immediately after the electronic filing is over through MCA portal. The relevant documents, viz., e-Form 20, Board resolution and statement in lieu of prospectus should be sent in original alongwith a forwarding letter quoting the Service Request Number (SRN) of filing e-Form 20, to the RoC. Unless the documents and e-Form 20 are submitted in original to the RoC, filing shall be treated as incomplete and certificate of commencement of business will not be granted by the RoC and company shall be subject to legal action. J. ISSUE OF CERTIFICATE OF COMMENCEMENT OF BUSINESS BY RoC After scrutiny of documents and e-Form 20, the RoC, being satisfied that all the formalities have been completed by the company, shall issue a certificate granted the permission to commence business and assume borrowing powers. K. SAFE CUSTODY OF CERTIFICATE Since, the certificate of commencement of business in a conclusive evidence that the company is authorised to commence business and exercise borrowing powers, the same should be kept in lock and key. L. EFFECT OF OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS The effect of obtaining the certificate of commencement of business is as follows : (i) The company can commence business. (ii) It can exercise borrowing powers. (iii) Any contract made by the company shall be valid with effect from the date of grant of certificate of commencement of business by RoC. Exception--In fact company cannot enter into any contract with any person or entity, however, this does not bar the company to simultaneously offer for subscription/allotment of any shares and debentures or receipt of any money payable on application for shares or debentures. M. EFFECT OF NON-OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS A public limited company having share capital cannot commence business before it obtains a certificate of commencement of business. If, such company incurs any liability before obtaining such certificate by entering into a contract. The contracts are not binding on shareholders and they shall not be liable to contribute towards the assets of the company in the event the company is wound up.--Vide In re, Merchants Ltd. (1932) 2 Comp Cas 407 (Lahore) and In re, Ambica Textiles Ltd. (1950) 20 Comp Cas 160 (Cal). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers Procedure for Obtaining Certificate of Commencement of Business by Company with Share Capital not having Issued Prospectus
A. INTRODUCTORY NOTE

It is incumbent upon a public limited company to obtain a certificate of commencement of business before commencing business or exercising borrowing powers. In the previous Chapter 9, the procedure for obtaining certificate of commencement of business by a public company having share capital and having issued a prospectus was discussed. In this Chapter, the procedure to be followed for obtaining commencement of business by a company having a share capital, but not having issued a prospectus inviting public to subscribe to its shares but has issued a statement in lieu of prospectus is discussed. As mentioned in Chapter 9, the provisions mentioned in this Chapter shall not be applicable to the private company or to a company registered before 1-4-1914, which has not issued a prospectus inviting the public to subscribe to its shares.

B. PAYMENT OF SHARE MONEY BY DIRECTORS

It should be ensured that every director of the company has paid to the company, on each of the share taken or agreed to take and for which, the director is liable to pay in cash, a proportion equal to the proportion payable on application and allotment of shares offered for public subscription.

C. STATEMENT IN LIEU OF PROSPECTUS

It has to be ensured that the statement in lieu of prospectus has been prepared in conformity with Schedule III of the Companies Act, 1956. While preparing the above statement the following conditions should e complied with :

(i) The statement in lieu of prospectus duly prepared in conformity with Part I of Schedule III of the Companies Act, 1956 and, in cases mentioned in Part II of that Schedule setting out the reports specified their, and the said parts I and II shall have effect subject to the provisions of Part III of that Schedule. The adjustment made should be duly verified and certified by the authorised signatory deriving authority from the board of directors. [Section 70(1)].

(ii) Every statement in lieu of prospectus delivered under sub-section (1), shall, where the persons making any such report as aforesaid have made thereon or have without giving the reasons, indicated therein, any such adjustments as are mentioned in clause 5 of the Schedule III, have endorsed thereon or attached thereto a written statement signed by those persons, setting out the adjustments and giving the reasons, thereof. [Section 70(2)]

(iii) The provisions are not applicable to a private company. [Section 70(3)]

(iv) If, a company acts in contravention of sub-section (1) or (2), the company and every director of the company who wilfully authorises or permits the contravention, shall be punishable with fine which may extend to ten thousand rupees. [Section 70(4)]

(v) Where a statement in lieu of prospectus delivered to RoC under sub-section (1) includes any untrue statement, any person, who authorised the delivery of the statement in lieu of prospectus for registration shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to Rs. 50,000 or both.

(vi) The statement in lieu of prospectus should be signed by every person named therein as director or proposed director or by agent duly authorised by him in writing.

D. BOARD RESOLUTION

A Board Resolution should be passed for--

(i) obtaining certificate of commencement of business,

(ii) approving the statement in lieu of prospectus, and

(iii) filing e-Form 20.

E. TIME LIMIT FOR OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS

No time limit. However, non-obtaining of certificate of commencement of business within one year from the date of incorporation of the company would constitute a ground for winding up of the company by court under section 433(c) of the Companies Act, 1956.

F. ELECTRONIC FILING OF e-FORM 20

e-Form 20 showing the declaration of compliance with the provisions of section 149(2)(b) of the Companies Act, 1956 should be filed through MCA portal, www.mca.gov.in.

1. Who can file e-Form 20 ?

The e-Form 20 should be filed by a person who has been authorised by the Board of director, such as managing director, director, manager or secretary.

2. Attachments

The following documents should accompany e-Form 20 :

(i) Board resolution approving the filing of e-Form and the statement in lieu of prospectus.

(ii) Statement in lieu of prospectus.

3. How to attach ?

The attachment shall be in PDF format. A physical document should be converted into an electronic document through scanning. A soft copy may also be converted into PDF format and used as an attachment to e-Form.

4. Digital Signature

All the documents including e-Form 20 should be digitally signed by a director or secretary. Such person should hold a valid Digital Signature Certificate (DSC) and should have an authority to sign the documents on behalf of the company through a Board resolution.

5. Filing Fee

Filing fee is to be paid in accordance with the authorised capital of the company, as per Schedule X of the Companies Act, 1956.

6. Stamp Duty

The declaration in e-Form 19 should be duly stamped in accordance with the stamp duty prevailing in the State in which registered office of the company is situated.

G. MODE OF PAYMENT

1. The fee can be paid through one of the specified modes, viz., remittance in authorised banks, credit cards or through internet banking. In case of online payment, filing process shall be complete immediately.

2. When payment is tendered through authorised bank (Punjab National Bank, State Bank of India, Indian Bank, ICICI Bank and HDFC Bank), a pre-filled challan (GAR-7) containing SRN, date of challan, expiry date, name and designation of user by whom challan is tendered, name and address of the company, particulars of remittance, total amount and head of account shall be generated by the system. The challan should be used for making payment before the date of expiry mentioned therein and the transaction shall be completed by the concerned banks.

H. EFFECT OF NON-PAYMENT BEFORE DUE DATE

Note, if payment is not made by the date mentioned on the challan, the submission of form shall be treated as incomplete and message through e-mail will be received that form cannot be regarded as filed due to non-payment. Status of application and payment can be verified through MCA portal.

I. PHYSICAL SUBMISSION OF DOCUMENTS AND e-FORM 20

Immediately after the electronic filing is over through MCA portal. The relevant documents, viz., e-Form 20, Board resolution and statement in lieu of prospectus should be sent in original alongwith a forwarding letter quoting the Service Request Number (SRN) of filing e-Form 20, to the RoC.

Unless the documents and e-Form 20 are submitted in original to the RoC, filing shall be treated as incomplete and certificate of commencement of business will not be granted by the RoC and company shall be subject to legal action.

J. ISSUE OF CERTIFICATE OF COMMENCEMENT OF BUSINESS BY RoC

After scrutiny of documents and e-Form 20, the RoC, being satisfied that all the formalities have been completed by the company, shall issue a certificate granted the permission to commence business and assume borrowing powers.

K. SAFE CUSTODY OF CERTIFICATE

Since, the certificate of commencement of business in a conclusive evidence that the company is authorised to commence business and exercise borrowing powers, the same should be kept in lock and key.

L. EFFECT OF OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS

The effect of obtaining the certificate of commencement of business is as follows :

(i) The company can commence business.

(ii) It can exercise borrowing powers.

(iii) Any contract made by the company shall be valid with effect from the date of grant of certificate of commencement of business by RoC.

Exception--In fact company cannot enter into any contract with any person or entity, however, this does not bar the company to simultaneously offer for subscription/allotment of any shares and debentures or receipt of any money payable on application for shares or debentures.

M. EFFECT OF NON-OBTAINING CERTIFICATE OF COMMENCEMENT OF BUSINESS

A public limited company having share capital cannot commence business before it obtains a certificate of commencement of business. If, such company incurs any liability before obtaining such certificate by entering into a contract. The contracts are not binding on shareholders and they shall not be liable to contribute towards the assets of the company in the event the company is wound up.--Vide In re, Merchants Ltd. (1932) 2 Comp Cas 407 (Lahore) and In re, Ambica Textiles Ltd. (1950) 20 Comp Cas 160 (Cal).