What is Company Valuation & How to Calculate It? Methods Explained

Eligibility

• Must be registered under the Government of India's MSME Development Act of 2006.
• Must be a company registered under the Companies Act of the Government of India and must meet the investment restrictions in plant and machinery or equipment set forth in the Government of India's MSME Development Act 2006.
• Must be a technology incubation enterprise or a startup registered as a company and located in an incubation center or park (in this case, a certification from the incubation center or park is required).
• Must be an STP Unit that has been approved.
• The invention must be in the field of electronics or information and communication technologies.

List Of Important Documents Required

1. Scanned copy of MSME Registration Certificate (For MSME Units)
2. Scanned copy of Company Registration Certificate (For Companies)
3. Scanned copy of STP Registration (For STP Units)
4. Scanned copy of the Registration Certificate issued by a competent authority and a certification from the incubation Centre/Park (For Technology Incubation Enterprise/Startup)
5. Scanned copy of the last audited Balance Sheet
6. Copy of product brochure, if any
7. Copy of latest Annual Report, if any
8. Copy of official filing receipt (OFR) with the Indian Patent Office
9. Copy of waiver under section 39 of the Indian Patent Act (Outside India)
10. Copy of proof of the application under PCT/ Paris Convention or Direct International Filing
11. Copy of technical writeup of invention as per the format of technical writeup
12. Patent search report
13. Scanned copy of Details for transfer of e-payments as per the format
14. Scanned copy of the Declaration form duly signed and sealed as per the format
15. A statement by the auditor of the enterprise that they fulfill the criteria of investment in plant and machinery or investment in capital equipment (as the case may be) as stipulated in the MSMED Act 2006.

Application procedure for Startups

• Visit the official website http://www.ict-ipr.in/sipeit/login.
• Create a User account by logging in after filling out all the details.
• Once “Login” is created, one can apply online for the scheme by submitting the required documents.

Selection OR Acceptance of Startups

The acceptance of startups under this scheme depends on the following criteria:

• For a particular invention, there can be one application for foreign filling.
• An Indian patent attorney firm with at least five years of experience in handling international patent applications handles and processes patent applications.
• Only five applications per financial year will be considered for reimbursement from a single applicant.
• The applicant should have already filed a patent application with the complete specification for the said invention with the Indian Patent Office.
• International patent filing options include the PCT route, the Paris Convention route, or filing directly in a foreign country of the innovator's choice.

Benefits

• This scheme provides financial support for the International filing of patents at different stages, including expenses in filing and processing.
• The maximum amount reimbursed per innovation shall be Rs 15 lakhs or 50% of the total expenditures paid in filing and processing a patent application up to grant, whichever is less.
• Under the scheme, financial support is also provided to Education Institutes, Meity societies, etc., for organizing seminars & workshops on IPR awareness.

Frequently Asked Questions

What is a Certificate of Commencement of Business?

The Certificate of Commencement of Business is a mandatory legal document that certain companies in India must obtain before they start their business activities. It is issued by the Registrar of Companies (ROC) under the Companies Act of 2013, and applies specifically to public and private companies limited by shares.

Beyond legal compliance, this certificate also plays a big role in establishing trust. It shows investors, banks, and stakeholders that your company has met all foundational requirements and is operating within the bounds of the law. It also helps prevent fraudulent incorporations by ensuring that companies follow due process from the start.

Significance of Commencement of Business Certificate

The Certificate of Commencement of Business serves multiple purposes:

• Legal Authorisation: It acts as formal approval for a company to start its operations.
  
• Regulatory Compliance: Ensures adherence to the provisions of the Companies Act of 2013.
  
• Prevention of Fraud: Minimises the risk of shell companies or fraudulent incorporations.
  
• Credibility: Enhances trust with investors, financial institutions, and stakeholders.
  
• Access to Funds: Allows the company to exercise borrowing powers and raise capital legally.
  

Commencement of Business under Companies Act 2013 – Old Act and Procedure

Under the Companies Act, 2013, companies with share capital cannot begin operations immediately after incorporation. While companies without share capital may commence business right after receiving the Certificate of Incorporation, those with share capital must secure a Certificate of Commencement of Business as per Section 11 of the Act and Rule 24 of the Companies (Incorporation) Rules, 2014.

This requirement is applicable to all newly formed public and private companies with share capital, highlighting the importance of meeting initial capital commitments and completing registration protocols before beginning operations or seeking external financing.

Position Under Erstwhile Companies Act, 1956

Previously, the Companies Act of 1956 governed the commencement of business for companies in India. Under this law, only public companies with share capital were required to obtain a Certificate of Commencement of Business. Private companies, on the other hand, were exempt and could begin operations immediately after incorporation.

The 2013 Act introduced more stringent rules, bringing private companies with share capital under the same requirements to enhance transparency and accountability.

Certificate of Commencement of Business Under Companies Act 2013

To obtain this certificate under the current law, companies must meet two critical requirements:

1. Declaration by a Director: The director must declare that every subscriber to the memorandum has paid for the shares they subscribed to.
   
2. Registered Office Verification: The company must file verification of its registered office with the ROC.
   

Only after fulfilling these conditions can the company apply for the certificate and begin lawful operations.

Eligibility Criteria for Commencement of Business Certificate

The Certificate of Commencement of Business (COB) is mandatory for the following categories of companies:

• Companies Incorporated on or after November 2, 2018: Any company registered after this date is required to obtain the COB Certificate within 180 days from the date of incorporation.
  
• Companies with Share Capital: Regardless of industry or business type, all companies with share capital must apply for and secure the COB Certificate before starting operations.
  

Which Company is Not Required to File a Certificate of Commencement of Business?

The following categories of companies are exempt from filing for the Certificate of Commencement of Business. These include:

• Companies Incorporated Before November 2, 2018: This exemption applies to companies that were established prior to the implementation of the Companies (Amendment) Ordinance, 2018, specifically before November 2, 2018.
  
• Companies Registered After November 2, 2018, Without Share Capital: Companies that were incorporated after November 2, 2018, but do not have a share capital structure, meaning they haven’t issued any shares, are also exempt from obtaining the COB Certificate.
  

Documents Required to Obtain Commencement of Business Certificate in India

To apply for the Certificate of Commencement of Business, companies must submit the following documents:

• Form INC-20A: A declaration filed by a director.
  
• Board Resolution: Approving the commencement of business.
  
• Proof of Capital Subscription: Evidence that all subscribers have paid their share value.
  
• Registered Office Proof: Utility bill or rental agreement confirming office address.
  
• Certificate of Incorporation: Issued by the ROC.
  

Application Process for Commencement of Business Certificate

Here’s a detailed walkthrough:

1. Log in to the MCA Portal
   Visit the official website of the Ministry of Corporate Affairs (MCA). Log into the MCA portal using your registered credentials (User ID and Password). If you are not registered yet, you must create an account first.
   
2. Navigate to the e-Filing Section
   After logging in, go to the 'MCA Services' tab and select the 'e-Filing' option. This section contains all the necessary forms and submission options for company-related filings.
   
3. Download and Fill out Form INC-20A
   Locate and download Form INC-20A- the specific form used for the Declaration of Commencement of Business. Carefully fill in all the required details, such as company information, paid-up share capital details, and confirmation of compliance with registration requirements.
   
4. Select the Correct Corporate Identification Number (CIN)
   Enter and double-check the Corporate Identification Number (CIN) of your company. This number uniquely identifies your company and ensures the form is linked to the right entity.
   
5. Attach the Required Documents
   Upload the necessary supporting documents, which typically include:
   
   • The director’s declaration that the subscribers have paid all share capital
     
   • Proof of registered office verification (such as a utility bill, rent agreement, or ownership document)
     
6. Select the Correct Corporate Identification Number (CIN)
   Enter and double-check the Corporate Identification Number (CIN) of your company. This number uniquely identifies your company and ensures the form is linked to the right entity.
   
7. Submit the Form and Pay the Prescribed Fee
   Once the form and attachments are ready, submit them through the portal. Pay the applicable government fee based on your company's authorised share capital. The payment can usually be made online through various options available on the MCA portal.
   
8. Receive the Service Request Number (SRN)
   After successful submission, the system will generate a Service Request Number (SRN). Save this number carefully, it will help you track the status of your application and any future correspondence regarding your Certificate of Commencement of Business.
   

Time Limit for Filing the Declaration of Commencement of Business

As per Section 11 of the Companies Act, 2013, the declaration must be filed within 180 days from the date of incorporation. Failure to do so can lead to:

• Penalties for the company and its officers.
  
• Potential strike-off from the ROC register
  

Form INC-20A

Form INC-20A is the declaration form filed to confirm the commencement of business. It must be signed by a director and certified by a professional (CA/CS/CWA). The form includes:

• Company details
  
• Paid-up capital confirmation
  
• Registered office address verification
  

Fee For Filing Form 20A and Receiving Commencement of Business Certificate

The fee for filing Form INC-20A depends on the company's authorised share capital:

Consequences of Not Filing Certificate of Commencement of Business

Failing to file Form INC-20A within the 180-day window leads to:

• Penalty of ₹50,000 for the company.
  
• ₹1,000 per day penalty for each defaulting officer, up to ₹1 lakh.
  
• ROC may strike off the company’s name if it remains inactive under Section 11(3).
  

Conclusion

Obtaining the Certificate of Commencement of Business is a critical step that validates your company's readiness to operate in India’s regulatory landscape. For public and private companies with share capital, understanding and complying with this requirement ensures legal clarity, business credibility, and uninterrupted growth. By following the correct process, submitting the necessary documents, and meeting deadlines, companies can avoid heavy penalties and begin their entrepreneurial journey on the right foot.

Frequently Asked Questions

Understanding Company Capital Structure in 2025

Authorized capital is the maximum amount of share capital that a company is authorized to issue, while Paid-Up Capital is the actual amount of share capital issued and paid for by shareholders.

A company's capital structure forms the bedrock of its financial framework. This structure shows how a business funds its operations by mixing equity and debt to create a roadmap for growth and stability.

What is authorized capital and how is it defined in MOA?

Authorized capital (also called nominal or registered capital) sets the maximum share capital a company can legally issue to shareholders. The company's Memorandum of Association (MOA) clearly defines this limit under the Capital Clause.

This capital acts as a regulatory boundary. A private limited company with an authorized capital of ₹10 lakh can't issue more shares beyond this amount unless it changes its MOA. The company needs shareholder approval for this change and must file it with the Registrar of Companies within thirty days.

Paid-up capital meaning and its role in equity funding

Paid-up capital is the actual money shareholders give to a company when they buy shares. Unlike authorized capital, this represents real money in the company's accounts that it can use for business operations.

The 2015 Companies Act amendment removed the minimum paid-up capital requirement. Now entrepreneurs can start with just ₹5,000. This money proves valuable because you don't need to pay it back like a loan. The paid-up capital also shows the company's financial health, how much it relies on equity, and its loan repayment capacity.

Why capital structure matters during company registration

A well-laid-out capital structure shapes a new company's operations and growth potential. Your company's capital structure during registration affects:

1. Financial flexibility - A smart capital structure lets you raise future funds without changing legal documents often.
   
2. Risk assessment - Investors and lenders look at your capital structure to check financial stability.
   
3. Registration costs - Your authorized capital amount decides the registration fees and stamp duty.
   

Companies should balance their original capital structure based on what their industry needs, how they plan to grow, and where they can get funding.

Authorized Capital vs Paid-Up Capital: Key Differences

Understanding the distinction between authorized capital and paid-up capital is fundamental to grasping a company's capital structure. This knowledge is crucial for effective corporate governance, regulatory compliance, and financial planning.

Legal Definitions and Compliance Framework

• Authorized Capital is the maximum share capital a company is legally permitted to issue, as specified in its Memorandum of Association (MoA). This acts as a ceiling, ensuring that the company cannot issue shares beyond this limit without amending its foundational documents.
  
• Paid-Up Capital is the actual amount of money received from shareholders in exchange for shares issued. By law, paid-up capital must always be less than or equal to authorized capital.
  

Impact on Share Issuance and Fundraising

• Authorized capital represents the company’s potential for raising funds, setting the upper boundary for share issuance. It provides flexibility for future fundraising and expansion without the need for immediate regulatory changes.
  
• Paid-up capital reflects the real investment made by shareholders and is the actual capital available for business operations. It is recorded in the company’s financial statements and directly impacts the company’s financial strength and investor confidence.
  

When a company reaches its authorized capital limit with paid-up capital, it faces two choices:

• Increase authorized capital through a formal amendment to the MoA, requiring shareholder approval and regulatory filings.
  
• Facilitate share transfers among existing and new shareholders, without increasing the total capital.
  

Capital Flexibility: Changes and Procedures

• Authorized Capital: Can be increased or decreased by amending the MoA, which involves:
  
  • Reviewing the Articles of Association (AoA) for relevant provisions.
    
  • Passing a board resolution to convene a shareholders' meeting.
    
  • Obtaining shareholder approval via an ordinary or special resolution.
    
  • Filing statutory forms (such as eForm SH-7 and eForm MGT-14) with the Registrar of Companies within the prescribed timeframe.
    
• Paid-Up Capital: Changes only when the company issues new shares or when existing shares are fully paid up. This directly affects the company’s liability for dividends and its operational capital.
  

Comparative Table: Authorized Capital vs Paid-Up Capital

How to Decide Capital Amounts for New Companies

You need a well-laid-out approach to calculate the right capital amounts for your new company. This helps balance your current needs with future growth. Here's how you can break this down into four practical steps:

Step 1: Estimate operational and contingency needs

Start with a financing plan that shows your startup costs. Your plan should cover equipment purchases, premises costs, inventory, and working capital needs for your first 6-12 months. You'll need enough buffer money to handle unexpected expenses that could disrupt your operations. Capital projects always face uncertainties, so you should set aside a contingency fund—about 30% of your total estimated needs—to maintain financial stability. This fund serves as your safety net against future uncertainties.

Step 2: Set authorized capital for future scalability

After you figure out your requirements, you should set your authorized capital at 5-10 times your original paid-up capital. This gives you room to raise funds later without changing your MOA. To cite an instance, see how a ₹2 lakh immediate paid-up capital works better with ₹10-20 lakh authorized capital to create flexibility. Keep in mind that authorized capital sets your fundraising limit but doesn't represent actual money you can use.

Step 3: Determine paid-up capital based on shareholder commitment

Your shareholders' realistic contribution becomes your paid-up capital—the actual money invested in your company. Most startups work well with paid-up capital between ₹1 lakh and ₹5 lakh, based on what their industry needs. The final amount should match both your immediate operational needs and your shareholders' risk appetite.

Step 4: Consider ROC fees and stamp duty implications

The regulatory costs change with different capital amounts. ROC filing fees increase as your authorized capital grows—from ₹4,000 for capital under ₹1 lakh to ₹1,56,000 plus extra fees when capital exceeds ₹1 crore. The stamp duty (usually 0.15% of authorized capital) applies when you register or increase capital. A 2021 Supreme Court ruling made this duty a one-time payment with a maximum cap, whatever the future capital increases might be.

Case Study: Capital Planning for ABC Pvt Ltd

Let's get into how ABC Pvt Ltd planned its capital structure to balance current costs with future growth needs.

Original capital structure: ₹10 lakh authorized, ₹1 lakh paid-up

ABC Pvt Ltd set up its capital framework with ₹10 lakh authorized capital against ₹1 lakh paid-up capital. The company followed the post-2015 Companies Act amendment that removed the minimum paid-up capital requirement. This 10:1 ratio creates a perfect balance. It gives enough operational funds through actual investment while leaving room for future growth without needing regulatory changes.

ROC fee effects based on capital tiers

The company thought about how fees work at different capital levels. ABC Pvt Ltd kept its authorized capital at ₹10 lakh to avoid higher fee brackets. The ROC fee stays around ₹35,000 plus extra charges for authorized capital under ₹10 lakh. The company would pay much more if they go beyond this limit - ₹1,35,000 plus ₹100 per ₹10,000 for capital between ₹50 lakh and ₹1 crore.

Flexibility for future share issuance without MOA change

ABC Pvt Ltd can issue extra shares worth ₹9 lakh without changing its MOA. This difference between authorized and current paid-up capital gives them room to grow. Going beyond the ₹10 lakh mark would need shareholder approval, a board resolution, an extraordinary general meeting, and filing Form SH-7 with the Registrar within thirty days.

Cost-benefit analysis of higher authorized capital

The company's capital planning shows smart financial thinking. The ₹10 lakh authorized capital balances several factors:

Current savings: Lower ROC fees and stamp duty (usually 0.15% of authorized capital) Future flexibility: Room to issue extra shares worth ₹9 lakh without paperwork Credibility advantage: Better stability in the eyes of potential investors and partners

ABC Pvt Ltd shows how smart capital planning helps long-term business goals while keeping initial registration costs low. This matters a lot for new companies with tight budgets.

Frequently Asked Questions