How to take loan, before filing of Form INC 20A

Companies (Amendment) Ordinance, 2018 dated 02.11.2018 introduced New Section 10A after Section 10 in MCA, and same has been inserted in Companies (Amendment) Act, 2019. 

Section 10A mandates the filing of a "statement of commencement of business" within 180 days of the company's incorporation. If a company fails to file, it will face a slew of penalties and restrictions on company. 

Whether Company can accept loan from Directors or any other person before filing of INC 20A” 

A. EXTRACT OF LAW: 

As per 10A, a company having Share Capital incorporated after ordinance i.e., after 02.11.2018 shall not commence its business or exercise any borrowing powers unless, 

A declaration is filed by the directors in e-form Form No. INC-20A within 180 days from date of incorporation of company with ROC that ‘every subscriber to the MOA has paid the value of the shares agreed to be taken by him”. 

B. WHETHER LOAN CAN ACCEPT BEFORE FILING OF FORM 20A I.E. DECLARATION OF COMMENCEMENT OF BUSINESS? 

1. Situation loan may require after Incorporation: 

If a company incorporated with share capital of Rs. 10K and minimum required for opening of bank account in specific company is Rs. 25K. (However, these days bank accounts getting open with Incorporation of Company). 

At this situation company may face difficulty to open bank account. Then question arise whether loan from director can be taken to open bank account of the Company. 

Situation 2: Company may require funds for preliminary expense immediate after Incorporation of Company. In such case how to arrange to funds.

 

2. Extract of Section 10A: 

a company having Share Capital incorporated after the ‘Ordinance’ i.e. 02.11.2018, shall not commence its business or exercise any borrowing powers unless; a declaration is filed by the directors in e-form Form No. INC-20A. 

As mentioned in 10A to exercise borrowing power company is required to file 20A (declaration of commencement of business). The term Borrowing power includes acceptance of loan from any one i.e. whether Directors, Shareholders, Banks, NBFC etc. 

After reading the extract, one might conclude that, because borrowing power is particularly restricted under Section 10A, a firm cannot exercise borrowing power prior to filing an e-form 20A declaration. 

As a result, it is evident that no company can accept a loan from anyone before filing a 20A, even if the loan is only for the purpose of creating a bank account or paying for preliminary expenses. 

Furthermore, because it is not possible to file a strike-off form STK-2 before filing an Inc 20A, it is inferred that subscribers must deposit subscription money before the company is struck off. 

Because basis condition for filing of Inc -20A is proof of receipt of subscription money. Therefore, all will work in a sequence: 

* Receiving of Subscription Money 

* Filing of INC 20A for declaration of commencement of Business 

* Filing of STK-2 for strike off Company, if company wants to strike off. 

Conclusion: 

It is not at all allowed under Companies Act, 2013 to file any form before filing of Declaration of Commencement of Business including STK-2.