A Private company can commence business as soon as it receives
Show Hint
- Certification of incorporation
- Letter of intent
- Occupation certificate
- None of the above
The Correct Option is A
Solution and Explanation
Step 1: Understanding the Concept:
The question asks at which stage a private limited company is legally permitted to commence its business operations.
Step 2: Detailed Explanation:
Under the Companies Act, there is a distinction between the requirements for a private company and a public company to commence business.
- For a Private Company, the process is simpler. Once the company is registered with the Registrar of Companies (RoC) and the RoC issues the Certificate of Incorporation, the company comes into legal existence and is entitled to start its business activities immediately.
- Under the old Companies Act, 1956, a Public Company had an additional requirement. After receiving the Certificate of Incorporation, it had to obtain a 'Certificate of Commencement of Business' before it could start its operations. This required fulfilling further conditions, such as securing the minimum subscription. (Note: The Companies Act, 2013 has modified this, now requiring a declaration to be filed).
However, for a private company, the Certificate of Incorporation has always been the key document that allows it to commence business.
Step 3: Final Answer:
A Private company can commence its business as soon as it receives the Certificate of Incorporation.
Top Questions on Company Law
The Companies Act, 2013 does not deal with insolvency and bankruptcy when the companies are unable to pay their debts or the aspects relating to the revival and rehabilitation of the companies and their winding up if revival and rehabilitation is not possible. In principle, it cannot be doubted that the cases of revival or winding up of the company on the ground of insolvency and inability to pay debts are different from cases where companies are wound up under Section 271 of the Companies Act 2013. The two situations are not identical. Under Section 271 of the Companies Act, 2013, even a running and financially sound company can also be wound up for the reasons in clauses (a) to (e). The reasons and grounds for winding up under Section 271 of the Companies Act, 2013 are vastly different from the reasons and grounds for the revival and rehabilitation scheme as envis aged under the IBC. The two enactments deal with two distinct situations and in our opinion, they cannot be equated when we examine whether there is discrimi nation or violation of Article 14 of the Constitution of India. For the revival and rehabilitation of the companies, certain sacrifices are required from all quarters, including the workmen. In case of insolvent companies, for the sake of survival and regeneration, everyone, including the secured creditors and the Central and State Government, are required to make sacrifices. The workmen also have a stake and benefit from the revival of the company, and therefore unless it is found that the sacrifices envisaged for the workmen, which certainly form a separate class, are onerous and burdensome so as to be manifestly unjust and arbitrary, we will not set aside the legislation, solely on the ground that some or marginal sacrifice is to be made by the workers. We would also reject the argument that to find out whether there was a violation of Article 14 of the Constitution of India or whether the right to life under Article 21 Constitution of India was infringed, we must word by word examine the waterfall mechanism envisaged under the Companies Act, 2013, where the company is wound up in terms of grounds (a) to (e) of Section 271 of the Companies Act, 2013; and the rights of the workmen when the insolvent company is sought to be revived, rehabilitated or wound up under the Code. The grounds and situations in the context of the objective and purpose of the two enactments are entirely different.
(Extracted, with edits and revision, from Moser Baer Karamchari Union v. Union of India, 2023 SCC Online SC 547)- CLAT PG - 2026
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