Key Takeaways
- Commencement of business is the legal step that allows a newly incorporated company to start operations in India.
- Form INC-20A must be filed within 180 days of incorporation to declare share capital receipt and registered office verification.
- Companies cannot trade, borrow money, or open accounts until the declaration is filed and approved.
- Penalties for late or non-filing include ₹50,000 for the company and ₹1,000 per day per director (up to ₹1 lakh).
- Professional certification by a CA, CS, or CMA ensures the declaration is genuine and protects against legal issues.
Starting a company in India does not end with receiving the Certificate of Incorporation. There is one more crucial legal step before a company can actually start work — filing the Declaration of Commencement of Business under Section 10A of the Companies Act, 2013.
This requirement ensures that a company is not just created on paper, but is financially genuine and ready to operate. In this guide, we will clearly explain what commencement of business means, why it matters for Indian companies, and how it works in real life.
What Does “Commencement of Business” Mean in Simple Terms?
Commencement of business means getting legal permission to start operations after incorporation. Under Section 10A, a company must first declare that it has fulfilled two basic conditions.
First, all subscribers to the Memorandum of Association (MOA) must have paid the money for the shares they agreed to take. Second, the company’s registered office address must be verified with the Registrar of Companies (ROC).
Only after making this declaration can a company legally start business activities or borrow money. Without it, the company exists only on paper.
Example
If a company is incorporated with ₹5,00,000 share capital, the promoters must actually deposit this amount into the company’s bank account before starting business.
Which Law Governs Commencement of Business?
The requirement comes from Section 10A of the Companies Act, 2013, supported by Rule 23A of the Companies (Incorporation) Rules, 2014.
This provision became effective from 2 November 2018, when the government reintroduced the rule through an amendment.
In practical terms, this law applies to new companies formed after this date and ensures that only serious, funded businesses enter the market.
Why Was This Rule Reintroduced by the Government?
Earlier, companies had to obtain a Certificate of Commencement of Business. This requirement was removed in 2015 to make incorporation easier.
However, after its removal, many shell companies were created only to park money or avoid taxes. These companies had no real business or capital.
By reintroducing Section 10A, the government ensured that companies prove their financial reality and physical existence before operating.
Which Companies Must File the Declaration?
Every company must file the declaration if it meets both conditions below:
- Incorporated on or after 2 November 2018, and
- Has share capital
This includes:
- Private limited companies
- Public limited companies
- Section 8 (non-profit) companies with share capital
Companies without share capital and companies incorporated before 2 November 2018 are not required to file.
What Is the Time Limit for Filing?
The declaration must be filed within 180 days from the date of incorporation.
Example
If “ABCDE Technologies Private Limited” is incorporated on 1 January 2024, it must file the declaration by 29 June 2024.
Missing this deadline can lead to penalties and serious legal consequences.
How Is the Declaration Filed in Practice?
The declaration is filed through Form INC-20A on the MCA portal. A director of the company signs this form, confirming that all legal conditions are met.
Before filing, the company must:
- Open a bank account in its name
- Receive full share capital from subscribers
- Verify its registered office address
The form must also be certified by a CA or CS, which adds legal authenticity to the declaration.
What Documents Are Required?
To support the declaration, the following documents are commonly attached:
- Bank statement showing receipt of share capital
- Photograph of the registered office (inside and outside)
- Sectoral approval, if the business is regulated (for example, RBI for NBFCs)
These documents prove that the company is financially active and physically present.
Can a Company Start Business Before Filing INC-20A?
No.
A company cannot legally trade, raise loans, or operate before filing and getting approval of Form INC-20A.
In practice, banks usually refuse to open or activate current accounts unless this form is filed. This makes INC-20A a practical necessity, not just a legal formality.
What Happens If the Declaration Is Not Filed?
Non-filing leads to strict consequences:
- Company penalty: ₹50,000
- Director penalty: ₹1,000 per day per director (maximum ₹1,00,000 each)
- The ROC may strike off the company under Section 248
Example
If a company delays filing by 100 days and has two directors, the total penalty can go up to ₹2,50,000.
In severe cases, the company may be removed from official records, as if it never existed.
Why Is Commencement of Business So Important?
This declaration confirms three critical things:
- Real capital has been invested
- The company has a verified address
- Promoters are accountable from day one
It builds trust with banks, investors, regulators, and partners. For a new company, this trust is essential for loans, funding, and long-term credibility.
Practical Tips for Smooth Compliance
To avoid mistakes and delays, new companies should:
- Open the company bank account immediately
- Collect share capital without delay
- Verify the registered office early
- File Form INC-20A well before the 180-day limit
- Keep digital copies of all proofs
Early compliance avoids stress, penalties, and last-minute errors.
Conclusion
Filing Form INC-20A under Section 10A is the first real compliance milestone after incorporation. It converts a company from a legal name into a legally active business.
In simple words, incorporation gives your company existence, but the Declaration of Commencement of Business gives it permission to act. Treat it as the foundation of your company’s compliance and credibility.
Frequently Asked Questions About Commencement of Business Under Section 10A
If you are new to company registration in India, it’s normal to feel confused about what comes after incorporation.
These FAQs answer both common and deeper questions that beginners often ask when they first learn about commencement of business and Form INC-20A.
What is meant by “commencement of business” in simple words?
Commencement of business means getting legal permission to actually start work after your company is incorporated. It confirms that your company has received real share capital and has a verified office address. Until this step is completed, the company exists only on paper.
Think of it as “activation” after registration.
Is incorporation and commencement of business the same thing?
No, they are different steps. Incorporation creates the company as a legal entity, while commencement of business allows it to operate. A company can be incorporated today but still not allowed to do business until Form INC-20A is filed.
Both steps are compulsory, but they happen at different stages.
Why does the law require filing Form INC-20A?
The law wants to ensure that companies are genuine and not created only for name-sake or illegal purposes. By filing INC-20A, promoters prove they have invested real money and have a real office.
This helps prevent shell companies and builds trust in India’s corporate system.
Who exactly needs to file Form INC-20A?
Any company incorporated on or after 2 November 2018 that has share capital must file it. This includes private limited companies, public companies, and even Section 8 companies with share capital.
Companies without share capital do not need to file this form.
What happens if promoters delay depositing share capital?
If share capital is not deposited, the company cannot file Form INC-20A. This delay can push the company closer to the 180-day deadline and increase the risk of penalties.
In real life, many startups get stuck here because bank accounts are opened late.
Can a company issue invoices or sign contracts before filing INC-20A?
Legally, no. Until the declaration is filed and approved, the company cannot start business or borrow money. Even if some basic paperwork is done, it may not hold legal validity.
This can create problems later during audits or disputes.
What is the difference between Form INC-20A and Form INC-22?
Form INC-22 is used to verify the registered office address of the company. Form INC-20A is the declaration that allows the company to start business.
In simple terms, INC-22 confirms where the company exists, and INC-20A confirms it is ready to work.
Does filing Form INC-20A mean the company is fully compliant?
No, it only completes one important step. After this, the company still has ongoing compliances like GST registration, income tax filings, and annual ROC filings.
INC-20A is just the starting point of the compliance journey.
Can a startup with no immediate business plans delay filing INC-20A?
No. Even if you don’t plan to operate immediately, the law still requires filing within 180 days. Not filing can lead to penalties or even strike-off.
It’s safer to file early and keep the company compliant.
What is the difference between “commencement of business” and “active status” on MCA?
Commencement of business is achieved by filing INC-20A. Active status on MCA reflects that the company is compliant and not struck off.
If INC-20A is not filed, the company may eventually lose its active status.
