Commencement of Business
A private company or a company without share capital can commence its business immediately after obtaining certificate of commencement of business. But a public company having share capital cannot commence any business (or exercise borrowing powers) until it has obtained the certificate of commencement of business. In order to obtain the certificate, company must comply with the following provisions:Where the Company has Issued Prospectus: Where a company has issued a prospectus, it shall not commence any business or exercise borrowing powers until the following conditions are satisfied:
1. The company must have received the minimum subscription and shares must have been allotted up to the amount of minimum subscription.
2. Every director of the company must have paid to the company in cash the application and allotment money on the shares contracted to be taken in the same proportion as is payable by the public.
3. The company must not be liable for refund of application money due to the failure to apply for or to obtain the permission for shares to be dealt in on any stock exchange.
4. The company must have filed with the Registrar a declaration as to the compliance of above stated three conditions with the declaration must be duly verified by one of the directors or the secretary or where the company has not appointed a secretary, a secretary in whole time practice in the prescribed (Form No. 19) form. [Sec. 149(1)]
Where the Company has not Issued Prospectus:Where a company having share capital, has not issued a prospectus, the company shall not commence any business or exercise borrowing powers until the following conditions are satisfied:
1. The company must have filed with the Registrar a statement in lieu of prospectus.
2. Every director of the company must have paid to the company on the shares contracted to be taken, in cash, in the same proportion as is payable on application and allotment of such shares.
3. The company must have filed with the Registrar a declaration as to the compliance of above stated two conditions. The declaration must be duly verified by one of the directors or secretary or where the company has not appointed a secretary, a secretary in whole time practice in the prescribed (Form No. 20) form. [Sec. 149(2)]
Issue of certificate- Where the above stated conditions are satisfied by the company, the Registrar shall certify that the company is entitled to commence business.This certificate shall be conclusive evidence that the company is so entitled. [Sec. 149(3)]
Penalty- If any company commences business or exercises borrowing powers in contravention of this Section, every person who is responsible for the contravention shall, without prejudice to any other liability be punishable with fine which may extend to Rs. five thousand for every day during which the contravention continues. [Sec.149(6)]
Failure to Commence Business: If a company does not commence its business within a year from its incorporation or suspends business for a whole year, the company may be wound up by the Court. [Sec. 433 (c)]
It means that a public company must obtain the certificate of commencement of business within a year of its incorporation. At the same time a public as well as a private company must also commence its business within one year of its incorporation.
