Section 10A of Companies Act, 2013: Commencement of Business and INC-20A
Section 10A regulates when a newly incorporated company having share capital may commence business or exercise borrowing powers. It requires a director's declaration regarding payment for subscribed shares and compliance with the registered-office verification requirement.
Meaning and scope of Section 10A
Section 10A was inserted into the Companies Act, 2013 by the Companies (Amendment) Act, 2019, with effect from 2 November 2018. It applies to a company incorporated after the commencement of that amendment and having a share capital.
The section is intended to ensure that the subscribers have actually paid the value of the shares they agreed to take and that the company's registered office has been duly verified before the company starts business or uses borrowing powers.
Section 10A - statutory requirements
Sub-section (1): A covered company shall not commence any business or exercise borrowing powers unless both statutory conditions are fulfilled.
Clause (a): A director must file, within 180 days from incorporation, the prescribed declaration with the Registrar stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by that subscriber as on the date of the declaration.
Clause (b): The company must file verification of its registered office with the Registrar as required by Section 12(2) of the Companies Act, 2013.
Form INC-20A and Rule 23A
The declaration contemplated by Section 10A(1)(a) is made through Form INC-20A under Rule 23A of the Companies (Incorporation) Rules, 2014. The Ministry of Corporate Affairs' current instruction kit states that a company having share capital is required to file this declaration with the Registrar within 180 days of incorporation.
The MCA instructions also require the company and signatories to satisfy the applicable portal, CIN, director, digital-signature and professional-certification requirements. Supporting proof of payment for the value of shares subscribed is among the prescribed filing requirements.
Registered office verification under Section 12(2)
Section 10A(1)(b) expressly links commencement of business to the registered-office requirement in Section 12(2). Accordingly, a company covered by Section 10A should ensure that its registered-office particulars have been properly filed with the Registrar in the prescribed manner.
Penalty for non-compliance
Under Section 10A(2), if the requirements of the section are not complied with, the company is liable to a penalty of Rs. 50,000. Every officer who is in default is liable to a penalty of Rs. 1,000 for each day during which the default continues, subject to a maximum of Rs. 1,00,000.
Possible removal of company name
Section 10A(3) provides an additional consequence where the declaration under Section 10A(1)(a) has not been filed within 180 days and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations. In such circumstances, the Registrar may, without prejudice to the penalty provision, initiate action for removal of the company's name from the register of companies under Chapter XVIII of the Act.
Practical compliance checklist
- Confirm that the company has share capital and falls within Section 10A.
- Ensure every subscriber has paid the value of the shares agreed to be taken.
- Complete the registered-office verification required under Section 12(2).
- Arrange the supporting documents, including proof of subscribers' payment.
- File Form INC-20A through an authorised director within 180 days of incorporation.
- Complete the prescribed professional verification/certification and digital-signature requirements.
- Do not commence business or exercise borrowing powers until the requirements of Section 10A(1) are fulfilled.
Official references
For authoritative and current material, refer to the Ministry of Corporate Affairs for the Companies Act, 2013, the Companies (Incorporation) Rules, 2014 and Form INC-20A instructions, and to India Code for central legislation.
Related Companies Act provisions
Section 10A should be read with the incorporation provisions and, in particular, Section 12 concerning the registered office. The related internal links in the sidebar provide quick access to Sections 3 to 20 of the Companies Act, 2013.