INC-20A: Declaration for Commencement of Business – Why It's Crucial for Startups
- adityas41
- Feb 24
- 6 min read
As an entrepreneur, you're likely familiar with the thrill and challenges of setting up a new company. From choosing the perfect name to drafting the memorandum of association, there are numerous legal and procedural hoops to jump through. However, one crucial step that often gets overlooked amidst the excitement of incorporation is filing the declaration for commencement of business – INC-20A.
In this comprehensive guide, we'll demystify INC-20A and explain why it's a non-negotiable compliance requirement for startups in India. We'll cover what it is, who needs to file it, by when, and the consequences of non-compliance. By the end of this post, you'll have a clear understanding of INC-20A and how to navigate this essential filing with ease.
Setting the Context: Company Incorporation in India
Before we dive into the specifics of INC-20A, let's take a step back and understand where it fits into the broader context of company incorporation in India.
Incorporating a company is akin to giving birth to a new legal entity. Just like a newborn needs to be registered with the authorities to establish its identity, a company needs to be incorporated with the Registrar of Companies (ROC) to come into legal existence.
However, incorporation is just the first step. To draw an analogy, think of setting up a brick-and-mortar shop. Incorporation is like leasing the space and putting up the signboard. But before you can actually open for business, there are a few more formalities to take care of – like obtaining necessary licenses and permits, stocking inventory, and hiring staff.
Similarly, for a company, incorporation is followed by two key milestones:
Commencement of Business: This is when the company becomes eligible to conduct business transactions. It's like getting the final approvals to open your shop's doors to customers.
Commencement of Operations: This is when the company actually starts conducting its core business activities. It's like your shop beginning to sell products or services to customers.
INC-20A is the crucial link between incorporation and commencement of business. It's a declaration that the company has fulfilled all the necessary conditions to start doing business.
What is INC-20A?
INC-20A is a form filed by a newly incorporated company with the ROC, declaring that it has met all the requirements for commencing business operations. It's a mandatory compliance under section 10A of the Companies Act, 2013.
The form contains a declaration by the directors of the company stating that:
The company has filed a verification of its registered office address with the ROC (in form INC-22)
The company has the minimum paid-up capital as prescribed under the Companies Act
Every subscriber to the memorandum has paid the value of shares agreed to be taken by them
The company has filed a verification of its registered office address with the ROC
In essence, INC-20A is a confirmation that the company has completed all the prerequisite formalities and is now ready to start conducting business.
Who Needs to File INC-20A?
INC-20A is applicable to all newly incorporated companies in India, whether public or private. This includes:
Companies incorporated through the regular process (by filing SPICe MOA and SPICe AOA)
Companies incorporated through the simplified proforma for incorporating company electronically (SPICe+)
Producer companies
Section 8 companies (non-profit companies)
However, there are a few exceptions. The following types of companies are exempt from filing INC-20A:
One Person Companies (OPCs)
Companies incorporated through the RUN (Reserve Unique Name) service
Companies that have converted from LLP to company
It's important to note that even if a company is exempt from filing INC-20A, it still needs to comply with other post-incorporation formalities like filing INC-22 (for registered office verification) and INC-20 (for commencement of operations).
When to File INC-20A?
The deadline for filing INC-20A is 180 days from the date of incorporation of the company. For example, if a company is incorporated on January 1st, it must file INC-20A by June 29th (180 days later).
It's crucial to adhere to this timeline, as failure to file INC-20A within the prescribed period can lead to severe consequences, which we'll discuss later in this post.
Eligibility Criteria for Filing INC-20A
To file INC-20A, a company must fulfill the following criteria:
Minimum Paid-up Capital: The company must have received the minimum subscription amount as mentioned in its memorandum of association. For private companies, the minimum paid-up capital is Rs. 1 lakh, and for public companies, it's Rs. 5 lakh.
Registered Office Verification: The company must have filed INC-22, verifying the address of its registered office, within 30 days of incorporation.
Director Identification Numbers: All the proposed directors of the company must have obtained their Director Identification Numbers (DINs).
Payment of Share Value: Every subscriber to the memorandum must have paid the full value of the shares agreed to be taken by them.
No Pending Approvals: The company must have obtained all necessary approvals, licenses, and permissions required for commencement of business.
Documents Required for Filing INC-20A
To file INC-20A, the following documents must be submitted:
Subscriber's Proof of Payment: Proof of payment of the value of shares by each subscriber to the memorandum. This can be in the form of bank statements, receipts, or other relevant documents.
Registered Office Verification: A copy of INC-22 filed with the ROC for verification of the company's registered office address.
Affidavit of Directors: An affidavit from each director of the company, stating that all the requirements for commencement of business have been complied with.
Declaration of Compliance: A declaration by a director, company secretary, or chartered accountant (in whole-time practice) that the company has complied with all the provisions of the Companies Act and rules thereunder for commencement of business.
Proof of DIN: Copies of the DIN allotment letters of all the proposed directors of the company.
Approvals and Licenses: Copies of any necessary approvals, licenses, or permissions required for the commencement of business, depending on the nature of the company's activities.
Consequences of Not Filing INC-20A
Failing to file INC-20A within the prescribed timeline can have serious implications for a startup, both from a legal and practical standpoint.
Legal Consequences
Penalty: The company and every officer in default (including directors) can be punishable with a fine of Rs. 50,000. This penalty can be levied for each day of delay in filing INC-20A.
Freezing of Bank Account: The ROC may direct the company's bank to freeze its account until INC-20A is filed. This can severely cripple a startup's ability to conduct business transactions and meet financial obligations.
Striking Off: In extreme cases, the ROC may initiate the process of striking the company's name off the register, effectively dissolving the company.
Practical Consequences
Apart from legal repercussions, not filing INC-20A can also hinder a startup's growth and operations in several ways:
Inability to Conduct Business: Without filing INC-20A, a company cannot legally commence business operations. This means it cannot enter into contracts, raise invoices, or engage in any revenue-generating activities.
Difficulty in Raising Funds: Investors and lenders often conduct due diligence before committing funds to a startup. Non-compliance with INC-20A can raise red flags and make it difficult for the startup to secure funding.
Reputational Damage: Non-compliance with statutory requirements can damage a startup's reputation and credibility in the market. It can make potential customers, partners, and employees wary of doing business with the company.
How Fiscal Flow Can Help
Filing INC-20A and ensuring compliance with post-incorporation formalities can seem like a daunting task for startup founders already juggling multiple responsibilities. That's where Fiscal Flow comes in.
As a leading provider of tax and regulatory compliance services in India, Fiscal Flow specializes in handholding startups through the complex maze of legal requirements. Our team of experienced chartered accountants, company secretaries, and legal experts can assist you with:
Eligibility Assessment: We'll evaluate your company's readiness for filing INC-20A and help you meet all the eligibility criteria.
Document Preparation: We'll assist in preparing and verifying all the necessary documents required for filing INC-20A, including subscriber's proof of payment, registered office verification, director's affidavits, and more.
Filing and Follow-up: We'll file INC-20A on your behalf with the ROC and track the status of the application. In case of any queries or objections from the ROC, we'll coordinate with the authorities and ensure timely resolution.
Ongoing Compliance: Filing INC-20A is just one step in the larger compliance journey. We'll help you stay on top of all your post-incorporation compliance requirements, including annual filings, board meetings, and statutory audits.
With Fiscal Flow as your compliance partner, you can focus on what you do best – building and scaling your startup – while we take care of the legal and regulatory nitty-gritty.
Conclusion
INC-20A may seem like just another form to file, but it's a critical milestone in a startup's journey. It's the key that unlocks the door to commencing business operations and sets the stage for future growth.
By understanding what INC-20A is, who needs to file it, by when, and the consequences of non-compliance, startup founders can navigate this crucial compliance with confidence and avoid costly mistakes.
Remember, incorporating a company is just the beginning. To truly bring your entrepreneurial vision to life, you need to follow through with all the necessary post-incorporation formalities, including filing INC-20A.
If you're feeling overwhelmed by the legal complexities or need expert guidance on filing INC-20A and other compliance matters, Fiscal Flow is here to help. Our team of seasoned professionals can take the compliance burden off your shoulders, so you can focus on what matters most – growing your startup.
Don't let compliance roadblocks hold you back from achieving your entrepreneurial dreams. Take the first step towards commencing your business with confidence – contact Fiscal Flow today!
