How to start business
A company or a share capital can start its business immediately after receiving the certificate of starting a business without a private company or share capital. But a public company holding share capital cannot start any business (or the use of borrowing powers) until it has obtained the certificate of start of business. To obtain the certificate, the company must comply with the following provisions:Where Company Issued Prospectus: Where a company has issued a Prospectus, it shall not begin using any business or lending powers until the following conditions are satisfied:
1. The Company should have received minimum subscription and shares should have been allocated to the amount of minimum subscription.
2. Each director of the company must pay the company in cash Application and allocation money on the share should be contracted to take in the same ratio as payable by the public.
3. The Company must not be liable for the return of application money because it should not be liable to obtain permission to apply for failure to apply or obtain permission for shares on any stock exchange.
4. The Company may have filed an announcement with Registrar that the duly verified by one of the directors or secretaries for compliance with the above three terms with the Declaration or where the Company has not appointed Secretary, as prescribed (Form No. 19) a Secretary in practice all the time as prescribed (Form No. 19). [149(1)]
Where the Company has not issued Prospectus:Where, a company has not issued a share capital, a projectus, the Company shall not start any business or use lending powers until the following conditions are satisfied:
1. The company must have filed a statement in exchange for Prospectus with Registrar.
2. Each director of the company must pay the company on contracted shares, in cash, in the same ratio as payable on the application and allocation of such shares.
3. The company must have filed an announcement with the registrar that for compliance with the two terms mentioned above. The announcement should be duly verified by one of the directors or secretaries or where the company has not appointed a secretary, scheduled (Form No. 20) a secretary in practice all the time as set. [December 149(2)]
Issue Certificate- Where the terms above are satisfied by the company, the registrar will authenticate that the company is entitled to start a business. This certificate will be decisive proof that the company is so entitled. [December 149(3)]
Penal – If a company starts or practices the business of the borrowing powers in violation of this section, every person who is responsible for the violation will be punishable without prejudice to any other liability, which may rise to Rs 5,000 for every day during which the violation continues. [149(6)]
Failure to start a business: If a company does not start its business within one year from its incorporation or suspend the business for the whole year, the company may be injured by the court. [Section 433(c)]
This means a public company should get the certificate of start of business within one year of its incorporation. At the same time, a public and a private company should also start its business within one year of its incorporation.
