Commencement of Business

Meaning. Commencement of Business is the final stage in the formation of a company — the point at which the company becomes legally entitled to actually begin its business activities and to exercise its borrowing powers, as opposed to merely existing on the register.

The current legal position. Under Section 10A of the Companies Act, 2013 (inserted through a later amendment to close a gap in the earlier law), every company having a share capital — whether it is a private company or a public company — must, before it commences any business or exercises any borrowing powers, comply with two conditions:

1. a director of the company must file a declaration with the ROC stating that every subscriber to the Memorandum has actually paid the value of the shares he agreed to take; and
2. the company must have filed the required verification of its registered office with the ROC, as called for under Section 12(2).

This declaration must ordinarily be filed within 180 days of the date of incorporation. Historically, under the older company law, this requirement (then in the form of a formal "Certificate of Commencement of Business") applied only to public companies raising capital from the public, while a private company could begin business the moment it was incorporated; the present law, in its current form, extends the same discipline to every company with a share capital, public or private, so that money genuinely committed by subscribers is verified to have actually come in before the company starts trading or borrowing. …