Commencement of Business and the Prospectus of a company

Here, we are going to discuss the commencement of business and the prospectus of a company. Have your eye on this to know some interesting facts related to business.

Commencement of Business:

A Private Company and a company having no share capital can commence business immediately after incorporation. A public company is required to apply for and obtain a certificate of commencement of business from the registrar of companies before it can do any business or exercise any borrowing powers. A Public Company is required to file a prospectus or a statement in lieu thereof and a declaration of statutory compliance as provided by section 149, where after the registrar will issue a certificate for the commencement of business.

Declaration of Compliance under section 149 where the company issues a prospectus:

Under section 149 of the Act where a company having a share capital has issued a prospectus inviting the public to subscribe for its share, it cannot commence any business or exercise any borrowing powers unless

  • It has made allotment of shares to the extent of minimum subscription.
  • Every director of the company has paid on each of the shares taken or agreed to be taken by him for which he has to pay in cash a proportion equal to the proportion payable on application and allotment on the shares offered for public subscription; and
  • no money is or may become available to be repaid to the applicants on any shares of debentures which have been offered for public subscription by reason of any failure to apply for, or to obtain the permission for the share/debentures to be dealt with on any recognized stock exchange; and
  • A declaration in form 19 duly verified by one of the directors or secretary or where the company has not appointed a secretary in whole time practice regarding compliance of the matters referred above, which is required to be filed with the registrar for obtaining a certificate of commencement of business.

Declaration by companies which do not issue prospectus:

Where a company having a share capital has not issued a prospectus inviting the public to subscribe for its shares, the company cannot commence any business or exercise any borrowing powers unless

  • The company has filed with registrar a statement in lieu of prospectus;
  • every director of the company has paid on each of the shares taken or agreed to be taken by him for which he has to pay in a cash a proportion equal to the proportion payable on application on shares in cash; and
  • All the money due to be refunded to the applicants for shares and debentures offered for public subscription by reason of the failure of the company to apply form or to obtain permission from the shares and debentures to be dealt in on any recognized stock exchange has been refunded and no money is or may become liable to be repaid to such applicants.
  • A declaration in Form no.20 duly verified by one of the directors or secretary and where the company has not appointed a secretary, a secretary in whole time practice to the effect that the matters referred above has been compiled with, is required to be filed with registrar for obtaining from him a certificate of commencement of business.

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