Certificate of Commencement of Business (COB): Complete Guide

Running a business is not for the faint of heart. To ensure a smooth start for your business, it is crucial that you understand all the documents that the government requires from your company.

The Commencement of Business Certificate is one such essential document allowing companies to operate their businesses legally.

This article explains the application process and fees required to obtain a certificate of Commencement of Business.

What is the Commencement of Business Certificate?

A Commencement of Business Certificate (COB) is a mandatory declaration that confirms that a company is legally permitted to commence business operations. It highlights your company’s adherence to legal regulations and allows you to start business activities and secure funds.

The declaration must be made within 180 days of incorporation of the company to avoid penalties and legal consequences.

Form INC-20A: Declaration for Business Commencement

Form INC 20A is the declaration form that must be filed to obtain a certificate to commence business. It ensures that your company meets all statutory requirements, which is essential to maintaining its legal status and avoiding penalties. 

Timely and accurate filing of Form INC 20A ensures a smooth start for your company.

Difference Between Certificate of Incorporation and Certificate of Commencement of Business

The Certificate of Incorporation confirms the legal formation of a company, giving it a unique identity and registration number. It signifies that the company is recognised under law and can exist as a separate legal entity. Incorporation marks the official beginning of the company’s existence, but it does not allow the company to start commercial operations immediately.

The Certificate of Commencement of Business is issued to companies limited by shares and confirms that the company has commenced business, thereby enabling it to legally begin operations. Obtaining this certificate requires submitting the required documents, including a declaration of compliance and proof of minimum share capital. Without it, the company cannot engage in any business activities, even if it is incorporated.

Eligibility Criteria for Certificate of Commencement of Business

According to the Companies Act of 2013, it is mandatory for the following companies to obtain a commencement certificate of company before commencing business operations:

1. Public and private companies incorporated after November 2nd, 2018
2. All companies operating with a share capital framework

Companies that do not meet the criteria above are not required to file Form 20A.

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Which Companies Are Exempt from Filing for a Certificate of Commencement of Business?

Here are the companies that do not need to file for a Certificate of Commencement of Business:

• Companies Incorporated Before 2 November 2018 do not need to obtain the certificate because the requirement was introduced after that date.

• Companies Registered After 2 November 2018 Without Share Capital are exempt as they do not have the paid-up capital requirement tied to business commenced meaning obligations. 

• Non-profit Entities Without Share Capital such as Section 8 companies (limited by guarantee) also need not file for the certificate as they lack share capital.

Documents Required for Certificate of Commencement of Business

The following documents are required to obtain a certificate of business commencement:

1. Digital Signature Certificate (DSC)
2. Registered Company’s Proof of Address
3. Company Bank Statement as evidence of payments done by shareholders or subscribers
4. (If applicable) Registration Certificate issued by RBI
5. Consent Letter or Confirmation Letter from all directors of the company
6. Details of the board resolution of the company

Application Process for Certificate of Commencement of Business

You must fill out Form INC 20A in order to apply for a certificate of commencement of business for a private limited company.

1. The application process is as follows:
2. Log in to the official Ministry of Corporate Affairs (MCA) website.
3. Go to “MCA services” and choose the “E-filing” option, then select “Company Forms Download”.
4. Find the form titled Form No. INC-20A.
5. Enter the required information regarding your company. Optionally, select CIN from the drop-down menu and complete the form.
6. Submit the form. After submission, a serial request number (SRN) will be generated, which can used for correspondence with the MCA.
7. Attach the Digital Signature Certificate form on the MCA website.
8. Pay the required fees through the portal.

Once verification is complete, you will receive an acknowledgment email.

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Fee Structure for Filing Certificate of Business Commencement

The fee payable by your company will be based on its nominal share capital:

Additional fees will be required if the form is not filed within 180 days. The additional fees will depend on the duration of the delay:

Consequences of Non-Compliance with Form INC 20A Filing

It is essential for your company to submit the required form within the stipulated time, as non-compliance may have severe consequences for your business.

These consequences can include:

1. Penalties imposed on the company: If your company fails to acquire a Commencement of Business Certificate within 180 days of incorporation, the company can face a penalty of ₹50,000.

2. Penalty imposed on the directors: Directors of the defaulting company can face individual penalties of ₹1,000 per day of default, up to a maximum penalty of ₹1 Lakh.

3. Striking off of the company: Your company’s name may be removed from the Registrar of Companies if there are reasonable grounds to believe that the company is not engaged in business operations even after 180 days from the date of incorporation.

Common Mistakes to Avoid When Applying for a Commencement of Business Certificate

Here are common mistakes to avoid when applying for a Certificate of Commencement of Business:

• Deadline Oversight: Missing or late filing of forms can delay approval and prevent legal operations.

• Documentation Errors: Incomplete or incorrect documentation including board resolutions or proof of paid-up capital often leads to rejection.

• Capital Verification Lapses: Not verifying paid-up share capital before filing can halt the commencement of business process.

• Director Data Mistakes: Errors in director details or form data cause unnecessary resubmissions and delays.

• Professional Review Skipped: Skipping professional review increases the risk of mistakes and slows approval.

Conclusion

Obtaining a Commencement of Business Certificate is essential for ensuring a smooth start for your company. It not only helps you avoid various penalties but also helps build trust with shareholders.

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