Commencement of Business Certificate (COB): Everything You Need to Know

Operating a business in India requires compliance with various legal formalities, including obtaining a Commencement of Business Certificate (COB). This certificate is mandatory for companies with share capital and must be filed before starting operations or borrowing funds.

This article explains the importance of a Commencement of Business Certificate, who needs it, and how to apply.

What Is the Commencement of Business Certificate?

COB is a document filed by the directors of a company that serves as a declaration that the company is authorised to begin operations. It also confirms that the company has received the subscription money from its shareholders. New businesses must understand this document clearly for proper setup and to ensure legal compliance.

Additionally, it is an important requirement when applying for a business loan, as it demonstrates that the company is legally permitted to operate.

Form INC 20A

The Commencement of Business Certificate must be obtained by filing Form INC-20A with the Registrar of Companies. Businesses must submit this form within 180 days of incorporation to confirm that the company’s subscribed share capital has been deposited into its account. However, certain companies are exempt from filing Form INC-20A:

• Companies incorporated before 2nd November 2018.
• Companies incorporated on or after 2nd November 2018 that do not have share capital. 

Eligibility for Commencement of Business Certificate

The eligibility criteria depend on the company's incorporation date and share capital structure.

The companies that need to file a COB certificate include:

• Companies incorporated on or after 2nd November 2018.
• Companies with share capital, irrespective of the nature of business.

Documents Required for a Commencement of Business Certificate

To file Form INC-20A, companies must submit the following paperwork:

• Digital Signature Certificate (DSC)
• Proof of the registered company address
• Company bank statement or the proof of payment
• Reserve Bank of India (RBI) Registration Certificate (if applicable)
• Consent of the Directors and details of the Board Resolution

Application Process for Commencement of Business Certificate

Businesses can complete this process through the Ministry of Corporate Affairs (MCA) portal. Here are the general steps to file form INC 20A online:

1. Go to the MCA portal at mca.gov.in.
2. Log in with your registered ID and password.
3. Navigate to MCA Services > Company E-filing > Informational Services and select INC-20A- Declaration for Commencement of Business.
4. Enter the required details and upload the necessary documents.
5. Complete the payment process and submit the form.

*Please refer to the official MCA portal for the most up-to-date information on the application process.

Fee Structure for Companies with Nominal Share Capital

The fees are charged based on the nominal share capital of the company:

Consequences for Non-Compliance in Filing Form INC 20A

Failure to file Form INC-20A within 180 days of incorporation can lead to several legal and financial consequences for a company. These are some of the penalties for non-compliance with COB rules:

1. Financial Penalties: A fine of INR 50,000 is imposed on the company and each director may face an additional penalty of INR 1,000 per day of default, up to a maximum of INR 1,00,000.
2. Business Restrictions: Until the company obtains the Commencement of Business Certificate, it cannot begin operations or issue invoices. There will be restrictions on how it can raise capital as it cannot borrow money or access loans.
3. Company Strike-Off: If the company’s non-compliance continues, the Registrar of Companies may remove its name from the official register. This means the company will be dissolved, and it cannot operate legally.

Wrapping Up

Obtaining a Commencement of Business Certificate (COB) is a crucial step for companies with share capital in India. This certificate ensures compliance with the Companies Act of 2013, allowing businesses to commence operations smoothly and access necessary capital. Understanding how COB affects business operations is vital; it not only facilitates legal compliance but also enhances credibility with stakeholders. Additionally, possessing a COB is essential when seeking business funding, as it assures lenders of the company's legitimacy and adherence to statutory requirements.

If you're exploring financing options to expand your operations, SMFG India Credit offers business loans of up to INR 1 crore* without any collateral. To qualify, your business should have been operating for at least 3 years, with consistent income and profitability for the past 2 years. Apply online today or contact us for more details.