Capital Redemption Reserve: Definition, Uses, Tax Benefits & More

Apr 15, 2025
Private Limited Company vs. Limited Liability Partnerships

The Capital Redemption Reserve (CRR) is a statutory reserve that companies create when redeeming preference shares. It ensures financial stability by retaining an equivalent amount of capital in the business, safeguarding creditor interests and maintaining compliance with regulatory requirements.

This blog explores the definition, usage, tax benefits, and legal framework surrounding the Capital Redemption Reserve.

Table of Contents

What Is Capital Redemption Reserve?

The Capital Redemption Reserve (CRR) is a special reserve that a company must create when it redeems (buys back) its preference shares using its profits. As per corporate law, companies must transfer an amount equal to the nominal value of redeemed preference shares to the CRR to prevent capital reduction and maintain financial integrity.

When Is Capital Redemption Reserve Used?

CRR is utilised in various financial scenarios to maintain corporate stability, including:

  • Issuing bonus shares: CRR can be used to issue fully paid bonus shares to shareholders.
  • Funding share redemption: Ensures funds are available for preference share redemption.
  • Capital reconstruction: Helps restructure a company’s capital without impacting free reserves.
  • Balancing capital losses: Used in cases where capital losses need adjustment.
  • Source for share buybacks: Required when companies buy back shares using free reserves.

Redemption Of Preference Capital

The redemption of preference shares is subject to the following regulations:

  • Must be permitted in the Articles of Association.
  • Redeemable within 20 years of issue.
  • Methods of redemption:
    • Using Distributable Profits: Requires CRR creation.
    • Issuing Fresh Shares: CRR creation is not required if new capital is issued.
  • Shareholder Approval (75%): Required for further preference share issues.
  • Premium Payment: This can be funded from company profits or the securities premium account.

Modes of Redemption

The three primary modes of redemption are:

  1. Using Distributable Profits: CRR creation is mandatory, equal to the nominal value of redeemed shares.
  2. Issuing Fresh Capital: If a company issues fresh capital equal to the redemption amount, CRR creation is not required.
  3. Combination of Both: CRR is required only for the portion funded through distributable profits.

Modes of Redemption of Preference Shares

Companies can redeem (buy back) preference shares using one of the following methods:

  1. Using Distributable Profits
    The company uses its retained earnings or other profits to redeem the shares. In this case, it must create a Capital Redemption Reserve (CRR) equal to the nominal value of the redeemed shares to maintain financial stability.
  2. Issuing Fresh Capital
    The company raises funds by issuing new shares to replace the redeemed preference shares. Since this method does not reduce capital, creating a CRR is not required.
  3. Combination of Both
    A company may use both profits and fresh capital for redemption. CRR is required only for the portion funded through distributable profits, while the part covered by fresh capital does not require CRR.

{{company-reg-cta}}

Calculation and Accounting Entries For Capital Redemption Reserve

Calculation of CRR

CRR = Nominal Value of Redeemed Preference Shares (if using distributable profits)

Journal Entries

Application of Capital Redemption Reserve

  • CRR can only be used for issuing fully paid bonus shares.
  • CRR cannot be used for dividend distribution.
  • CRR must exclude unrealised gains and self-generated intangible assets before determining free reserves.
  • Classified as a statutory reserve, separate from revenue reserves.

Companies Act and Capital Redemption Reserve

  • Section 55: Companies redeeming preference shares from profits must transfer an equivalent amount to CRR.
  • Section 69: Companies buying back shares using free reserves or securities premiums must transfer an amount equal to the face value of bought-back shares to CRR.

Difference Between Capital Redemption Reserve and Other Reserves

Feature Capital Redemption Reserve General Reserve Revenue Reserve Revenue Reserve
Purpose Preference share redemption Financial stability Operational expenses Long-term capital gains
Mandatory creation Yes No No No
Usable for dividend No Yes Yes No
Usable for bonus shares Yes Yes No No

Tax Benefits For Capital Redemption Reserve

Under Section 36(1)(viii) of the Income Tax Act, 1961, specified entities can claim a tax deduction on contributions to a Special Reserve, reducing their taxable income. The deduction is capped at 20% of profits from eligible business activities before applying this clause. However, any future withdrawal from the reserve is treated as taxable income in the year of withdrawal.

Importance Of Capital Redemption Reserve

  • Maintains Financial Stability: Prevents a reduction in share capital.
  • Protects Shareholders’ Interests: Ensures capital is available for redemption.
  • Supports Capital Restructuring: Used in financial restructuring strategies.
  • Ensures Legal Compliance: Meets regulatory requirements under the Companies Act.
  • Enhances Investor Confidence: Used for issuing bonus shares, benefiting shareholders.

Final Thoughts

The Capital Redemption Reserve (CRR) plays a vital role in corporate finance by ensuring companies retain sufficient funds while redeeming preference shares. As a statutory reserve, it helps maintain financial stability, protects creditors' interests, and complies with legal requirements.

While it cannot be used freely like other reserves, its role in issuing fully paid bonus shares makes it a strategic asset for companies looking to optimise their financial position.

Frequently Asked Questions

rize image

Register your Business at just 1,499 + Govt. Fee

Register your business
rize image

Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your One Person Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your Business starting at just 1,499 + Govt. Fee

Register your business
rize image

Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What is the source of the Capital Redemption Reserve?

The Capital Redemption Reserve (CRR) is created from a company's distributable profits (such as retained earnings or general reserves) when it redeems preference shares. If shares are redeemed using fresh capital issuance, CRR is not required.

What is the difference between a Capital Redemption Reserve and a Debenture Redemption Reserve?

  • Capital Redemption Reserve (CRR): Created when a company redeems preference shares using distributable profits. It ensures financial stability and protects creditors.
  • Debenture Redemption Reserve (DRR): Created to ensure funds are available to repay debentures upon maturity. Unlike CRR, DRR is specific to debenture repayment obligations.

What is CRR in Preference Shares?

CRR is a statutory reserve that a company must create when redeeming preference shares using distributable profits. It ensures the company maintains its financial strength and does not reduce its capital base.

How is CRR created?

CRR is created by transferring an amount equal to the nominal value of redeemed preference shares from distributable profits (like retained earnings or general reserves) to a separate Capital Redemption Reserve account.

Which amount is transferred to the Capital Redemption Reserve?

An amount equal to the face (nominal) value of the redeemed preference shares is transferred to CRR when redemption is done using distributable profits. If redemption is done using fresh issue proceeds, no CRR transfer is needed.

Is Capital Redemption Reserve a distributable reserve?

No, CRR is not a distributable reserve. It cannot be used for dividend distribution or general business expenses. It can only be utilised to issue fully paid bonus shares to shareholders.

Is Capital Redemption Reserve a free reserve?

No, CRR is not a free reserve. Free reserves can be used for dividends or other business purposes, whereas CRR is restricted to bonus share issuance and cannot be utilised for any other purpose.

What are the conditions for the redemption of preference shares?

No, CRR is not a free reserve. Free reserves can be used for dividends or other business purposes, whereas CRR is restricted to bonus share issuance and cannot be utilised for any other purpose.

  1. Authorisation in Articles of Association (AOA): The company must have permission in its AOA to redeem preference shares.
  2. Redemption within 20 Years: Except for certain cases (like infrastructure companies), preference shares must be redeemed within 20 years of issuance.
  3. Fully Paid Shares: Only fully paid-up preference shares can be redeemed.
  4. Redemption Sources: Shares can be redeemed using distributable profits (requiring CRR creation) or by issuing fresh capital (no CRR required).
  5. Shareholder Approval: If a company wants to issue new preference shares post-redemption, it needs 75% shareholder approval.
  6. Premium Payment: If shares are redeemed at a premium, the premium must be paid from profits or the securities premium account.

Related Posts

What is a Shelf Prospectus? Meaning & Provisions Under the Companies Act, India

What is a Shelf Prospectus? Meaning & Provisions Under the Companies Act, India

A shelf prospectus is a legal document under the Companies Act of 2013 that allows a company to issue multiple rounds of securities without filing a new prospectus for each offering.

Once a company gets approval for a shelf prospectus, it can issue securities in tranches over a period (usually one year) without repeating the regulatory approval process. This mechanism is particularly beneficial for businesses that require frequent access to capital markets.

Simply put, a company gets approval for a prospectus and "shelves" it for use when needed. Just like a store keeps items on a shelf, ready to be picked up when required, companies can tap into their shelf prospectus whenever they decide to issue securities within the approved period.

Table of Contents

Shelf Prospectus Meaning

A shelf prospectus is a document issued by companies intending to offer securities in multiple tranches over a specified period without filing a new prospectus for each offering. Governed by the Companies Act of 2013, it serves as a framework to streamline capital-raising activities while ensuring regulatory compliance.

This approach helps all types of companies save time and resources while maintaining transparency in financial disclosures.

What Is The Validity Period of Shelf Prospectus?

As per the Companies Act of 2013 and SEBI regulations, a shelf prospectus is valid for one year from the issue date. During this period, the company can make multiple security offerings without submitting a fresh prospectus.

However, an Information Memorandum must be filed for each subsequent offering to ensure updated financial and operational disclosures.

What Are The Requirements For Shelf Prospectus?

To issue a shelf prospectus, a company must fulfil specific requirements under the Companies Act, 2013:

  • Eligibility Criteria: The company must be a public financial institution, a bank, or a company notified by SEBI.
  • SEBI Approval: Approval from the Securities and Exchange Board of India (SEBI) is mandatory before issuance.
  • Financial Disclosures: The prospectus must include audited financial statements, business details, and risk factors.
  • Regulatory Compliance: The company must adhere to statutory provisions and filing requirements.

Who Can Issue Shelf Prospectus?

Not all companies are eligible to issue a shelf prospectus. As per SEBI regulations, only specific entities can do so, including:

  • Public Financial Institutions such as banks and NBFCs.
  • Scheduled Banks that meet regulatory criteria.
  • Other Companies notified by SEBI, provided they meet compliance standards.

Looking to register your LLP? Head over to Razorpay Rize and get your LLP incorporated today!

What Are The Eligibility Criteria For a Company to Issue a Shelf Prospectus?

To issue a shelf prospectus, a company must meet the following key eligibility criteria:

  • Strong Financial Performance: A consistent and positive financial track record is essential.
  • Regulatory Compliance: The company must have a history of timely filings and adherence to statutory norms.
  • Market Reputation: A credible and trustworthy market presence is necessary.
  • Clear Disclosure of Fund Utilization: The company must provide transparency regarding how the raised funds will be used.

5 Incredible Advantages of Shelf Prospectus

A shelf prospectus offers several benefits to companies and investors:

  1. Flexibility: Companies can issue securities as needed without additional regulatory approvals.
  2. Cost Efficiency: Reduces administrative and compliance costs associated with repeated filings.
  3. Faster Time to Market: Companies can respond quickly to market conditions.
  4. Improved Investor Relations: Provides transparency and trust through consistent financial disclosures.
  5. Strategic Financial Planning: Enables better capital-raising strategies over time.

How Does an Investor Benefit from a Shelf Prospectus?

Investors gain multiple advantages from a shelf prospectus:

  • Greater Transparency: A single document offers comprehensive details about the company.
  • Consistent Access to Securities: Investors can participate in multiple offerings from a single prospectus.
  • Time-Saving: Reduces the need to analyse multiple prospectuses for each security issuance.
  • Better Investment Planning: Enables informed decision-making with consistent financial disclosures.

Difference Between Shelf Prospectus and Red Herring Prospectus?

Parameter Shelf Prospectus Red Herring Prospectus
Purpose Used for multiple securities offerings over time Used for IPOs before the issue price is finalised
Validity Period Valid for one year from the issue date Valid only for a single IPO
Flexibility Allows multiple issuances without a new prospectus Only valid for a one-time offering
Information Contains comprehensive details about the company and financials Lacks finalised share price details
Regulatory Requirement Requires filing of Information Memorandum Needs SEBI approval before IPO launch

Financial Securities and Shelf Prospectus

A shelf prospectus allows companies to issue various types of financial securities, including:

  • Equity Shares: Ownership stakes in a company.
  • Debentures: Debt instruments issued by companies.
  • Bonds: Fixed-income securities providing periodic interest payments.

This streamlined approach reduces delays and administrative hurdles for issuing these securities over multiple tranches.

What Is an Information Memorandum?

An Information Memorandum is a document containing essential details about a company’s financials, operations, and business strategy. It is a key resource for investors, offering in-depth insights into the company's capital-raising plans.

When a company issues securities under a shelf prospectus, it must file an Information Memorandum before each offering to ensure updated and accurate disclosures.

Procedure to Fill Form PAS-2

Form PAS-2 is required to be filed as per the Companies (Prospectus and Allotment of Securities) Rules, 2014. Here’s how to fill it:

  1. Company Details: Enter the name, registered office, and CIN.
  2. Security Details: Specify the type and number of securities being offered.
  3. Offer Details: Mention the issue price, purpose, and utilisation of funds.
  4. Financial Statements: Attach recent audited financial reports.
  5. Declaration: Ensure proper authorisation and sign the form.

Procedure to Upload Form PAS-2

Once Form PAS-2 is completed, follow these steps to upload it to the MCA (Ministry of Corporate Affairs) portal:

  1. Prepare the Form: Ensure all required fields are filled out correctly and attach the necessary documents.
  2. Log in to the MCA Portal: Use company credentials to access the e-filing section.
  3. Upload the Form: Select Form PAS-2, attach supporting documents and verify details.
  4. Payment of Fees: Pay the prescribed filing fee through the portal.
  5. Submit and Confirm: After submission, a confirmation receipt and acknowledgement are generated.

Conclusion

For companies, a shelf prospectus eliminates the repetitive, time-consuming regulatory hurdles that come with multiple capital raises.

Instead of drafting and filing a new prospectus each time, businesses can plan their fundraising strategically, issuing securities when market conditions are favourable. This saves time, reduces administrative costs, and provides the flexibility needed to stay competitive.

For businesses, this means less paperwork, faster fundraising, and more flexibility to raise funds when needed. For investors, it provides greater transparency and clarity, helping them make better financial decisions.

By using a shelf prospectus wisely, companies can focus on growth, and investors can confidently explore opportunities—making it a win-win for everyone in the financial market.

Frequently Asked Questions

rize image

Register your Business at just 1,499 + Govt. Fee

Register your business
rize image

Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your One Person Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your Business starting at just 1,499 + Govt. Fee

Register your business
rize image

Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What is meant by Shelf Prospectus?

A Shelf Prospectus is a type of prospectus that allows a company to issue securities in multiple tranches over a period of time without needing to file a separate prospectus for each offering. It provides flexibility for companies to raise funds as needed, reducing administrative burdens and costs.

What is Shelf Prospectus in Company Law Section 1?

In the context of Company Law (India - Companies Act, 2013, Section 31), a Shelf Prospectus is a prospectus issued by public financial institutions, banks, or listed companies for raising capital through multiple offerings. The prospectus remains valid for a specified period, and the company only needs to file an Information Memorandum before each tranche of issuance.

Does the Shelf Prospectus Require a Different Prospectus for Each Offering?

No, a Shelf Prospectus eliminates the need to file a separate prospectus for each offering. Instead, an Information Memorandum is submitted before each issuance, updating investors with relevant details about the specific tranche.

Is Shelf Prospectus Valid for Years?

In India, a Shelf Prospectus is typically valid for one year from the date of filing). Within this period, the company can issue securities in multiple tranches without filing a fresh prospectus each time.

Why Would a Company File a Base Shelf Prospectus?

A company files a Base Shelf Prospectus to:

  • Streamline Fundraising: Raise capital efficiently over time without repetitive regulatory approvals.
  • Reduce Costs: Minimize administrative and legal expenses associated with frequent filings.
  • Enhance Flexibility: Issue securities when market conditions are favourable.
  • Ensure Compliance: Maintain transparency while avoiding delays in capital raising.

Sarthak Goyal

Sarthak Goyal is a Chartered Accountant with 10+ years of experience in business process consulting, internal audits, risk management, and Virtual CFO services. He cleared his CA at 21, began his career in a PSU, and went on to establish a successful ₹8 Cr+ e-commerce venture.

He has since advised ₹200–1000 Cr+ companies on streamlining operations, setting up audit frameworks, and financial monitoring. A community builder for finance professionals and an amateur writer, Sarthak blends deep finance expertise with an entrepreneurial spirit and a passion for continuous learning.

Read more
How to apply for a Digital Signature Certificate in India | Razorpay Rize

How to apply for a Digital Signature Certificate in India | Razorpay Rize

A Digital Signature Certificate (DSC) is a secure digital key issued by a trusted authority, known as a Certificate Authority (CA), that is used to authenticate the identity of individuals, organizations, or devices in the digital world.

It is a digital equivalent of a handwritten signature or a stamped seal, providing assurance of the signer's identity and the integrity of the signed document or message. In general, a DSC includes details such as name, postal code, country, email address, certificate issuance date, and the name of the certifying authority.

In this blog, we'll explore the significance of DSCs, the process of applying for them in India, and their key features.

Table of Contents

Importance of a Digital Signature Certificate

The importance of a Digital Signature Certificate (DSC) lies in its ability to provide strong authentication, integrity, and proper encryptions in digital transactions and communications.

Importance of a Digital Signature Certificate in India

Here are several key reasons why DSCs are important and why you should apply for one as a founder:

1. Authentication

  • DSCs verify the identity of individuals, organizations, or devices involved in digital transactions, ensuring that the sender is who they claim to be.

2. Integrity

  • Digital signatures created using DSCs ensure the integrity of electronic documents or messages by detecting any unauthorized changes or tampering.

3. Security

  • DSCs use strong cryptographic techniques to protect sensitive information and prevent unauthorized access.

4. Legal Recognition

  • In India, many industries and regulatory frameworks require the use of DSCs for specific types of transactions or communications to comply with security and privacy regulations.

5. Government Services

  • DSCs play an important role in the company registration process irrespective of the company type. Accessing government services, filing tax returns, or participating in e-tendering processes require digital signatures for authentication and authorization.

6. Efficiency

  • DSCs streamline digital workflows by enabling secure and paperless transactions without the physical presence.

Overall, DSCs offer numerous benefits, including enhanced security, legal validity, efficiency, and cost savings, making them indispensable for digital transactions and communications

Different Classes of Digital Signature Certificates (DSCs)

Certifying authorities issue 3 types of DSCs to accommodate various needs and purposes.The type of applicant and the intended use of the Digital Signature Certificate determine the specific kind of DSC that should be sought based on the requirements.

Class 1 DSC:

  • These certificates are issued for individuals or private users and are primarily used for email communication and basic transactions.
  • Verification requirements are minimal, typically involving email validation or verification of basic personal information.

Class 2 DSC:

  • Class 2 certificates are used for both individual and organizational purposes and offer a higher level of security and trust compared to Class 1.
  • To obtain a Class 2 DSC, the applicant's identity is verified against a trusted government-issued identity document, such as a passport or driver's license.

Class 3 DSC:

  • Class 3 certificates provide the highest level of security and are typically used for online transactions involving high-value financial transactions, e-commerce, and government applications.
  • The verification process for Class 3 DSCs involves rigorous identity verification procedures, including in-person verification and submission of supporting documents.

Certifying Authorities in India

Certifying Agencies are designated by the office of the Controller of Certification Agencies (CCA) in accordance with the provisions of the IT Act, 2000. Currently, there are eight Certification Agencies authorized by the CCA to issue Digital Signature Certificates (DSCs).

Major DSC Certifying Authorities in India

Format of a Digital Signature Certificate

A DSC typically contains the following components:

1. Public Key

  • A cryptographic key that is made publicly available and used to verify digital signatures created by the corresponding private key.

2. Private Key

  • A secret key that is securely held by the owner and used to create digital signatures for documents or messages.

3. Certificate Information

  • Details about the certificate, including the issuer (Certifying Authority), the validity period, a unique identifier, the subject (owner), and the digital signature of the CA to confirm its authenticity.

4. Digital Signature

  • A unique digital signature generated using the private key of the certificate, which can be verified using the corresponding public key.

The format of a Digital Signature Certificate (DSC) can vary depending on the issuing Certificate Authority (CA) and the type and class of the certificate.

Documents required for obtaining a Digital Signature Certificate

The documents required for obtaining a Digital Signature Certificate (DSC) include:

  • Proof of Identity: Copy of any one of the following government-issued identity documents attested by a Gazetted officer:
    • Passport
    • Aadhaar Card
    • PAN Card
    • Voter ID Card
  • Proof of Address: Copy of any one of the following documents showing the applicant's residential address attested by a Gazetted officer:
    • Utility bill (electricity, water, gas, telephone)
    • Bank statement
    • Rent agreement
  • Passport Size Photograph: Recent passport-size color photograph of the applicant.
  • Self-attested Copy of PAN Card: A self-attested photocopy of the applicant's PAN Card.
  • Organization Documents (if applicable):For organizations, additional documents such as the Certificate of Incorporation, Memorandum of Association (MOA), Articles of Association (AOA), or Partnership Deed may be required.

It's important to note that the specific documents required may vary depending on the type of Digital Signature Certificate (e.g., Class 1, Class 2, Class 3), the Certification Authority (CA) issuing the certificate, and the purpose for which the certificate is being obtained.

How to apply for a Digital Signature Certificate?

Razorpay Rize simplifies this process by streamlining e-filing on the MCA portal (company registration process), and as part of the package, you can acquire 2 Digital Signature Certificates for the involved directors/partners.

Note: It's necessary to obtain a Digital Signature Certificate (DSC) of either the Class 2 or Class 3 signing certificate category issued by a licensed Certifying Authority (CA) to facilitate e-filing on the MCA Portal for company registration processes.

Alternatively, you also have the option to apply for DSCs through designated certifying agencies through the following steps.

  • Choose a Certifying Authority (CA) accredited by the Controller of Certification Agencies (CCA) under the provisions of the IT Act, 2000.
  • Determine the type and class of DSC required based on your needs and the level of security required (e.g., Class 1, Class 2, Class 3).
  • Gather the necessary documents, including proof of identity, proof of address, passport-size photograph, self-attested copy of PAN card, and any organization-related documents (if applicable).
  • Obtain and fill out the DSC application form provided by the chosen Certifying Authority. Fill in the necessary details like the Class of the DSC, validity, type, applicant name and details, residential address, etc.
  • Undergo the identity verification process as per the CA's requirements, which may involve in-person verification or online verification, depending on the type of DSC and the CA's policies.
  • Pay the prescribed fees.
  • Upon successful verification and payment, the Certifying Authority will generate a unique key pair consisting of a public key and a corresponding private key.
  • Once the key pair is generated, the Certifying Authority will issue the Digital Signature Certificate.
  • Install the DSC on the appropriate device or token as per the CA's instructions.

Validity of the Digital Signature Certificate

Digital Signature Certificates (DSCs) are commonly issued with either a one-year validity or a two-year validity period.

These certificates can be renewed upon expiry of the initial validity period. Renewal procedures typically involve submitting updated documentation and undergoing identity verification processes, similar to the initial application process.

Fees for the Digital Signature Certificate in India

If you’re registering your business with Razorpay Rize, DSCs are commonly included in the package regardless of the company type.

In the case of direct applications, the fees include various components, including the one-time cost of the medium (such as a USB token), the Digital Signature Certificate (DSC) issuance cost, the renewal cost after the validity period expires, and the support costs (if any).

The costs, as mentioned on the MCA website, are as follows-

Certifying Authority Cost of DSC with one-year validity,
excluding USB token cost & Taxes
Cost of DSC with two-year validity,
excluding USB token cost & Taxes
MTNL CA Rs. 300/- (for MTNL phone subscribers) and Rs. 450/- for others Rs. 400/- (for MTNL phone subscribers) and Rs. 600/- for others
TCS Rs. 1245 (Inclusive of 12.24% Sales Tax.) Rs. 1900/- (Inclusive of 12.24% Sales Tax)
IDBRT Rs. 750/- (Rs. 500/- towards administrative expenses and Rs. 250/- for Certificate) Rs. 1500/-
SAFESCRYPT Rs. 995/- Rs. 1650/-
NIC NIL for Government Rs. 150/- for PSU, Autonomous & Statutory Bodies NIL for Government Rs. 150/- for PSU, Autonomous & Statutory Bodies
Central Excise and Customs NA NA
e-Mudhra Rs. 899/- Rs. 1149/-

Frequently Asked Questions

rize image

Register your Business at just 1,499 + Govt. Fee

Register your business
rize image

Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your One Person Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your Business starting at just 1,499 + Govt. Fee

Register your business
rize image

Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

Is there a difference between a digital signature and a DSC?

Yes, a digital signature refers to the cryptographic technique used to sign electronic documents, while a DSC is the digital certificate that contains a digital signature key pair and is used to verify the signer's identity.

What are the different types of DSCs valid during Company registration?

The different types of Digital Signature Certificates currently valid during company registration are class 2 and class 3 types.

Is a Director Identification Number (DIN) required to apply for DSC?

No, you can apply for a DSC without the DIN with supported documents as mentioned in the above sections

How can I check the validity of a DSC?

To check the validity of a Digital Signature Certificate (DSC), you can follow these steps:

  • Access the different USB token tools that are currently available.
  • Login & enter the token password when prompted.
  • Select your certificate name from the list.
  • Once selected, the certificate will open. Navigate to the ‘Details’ tab, where you will find comprehensive information about your certificate, including its validity details.

Certificate of Commencement of Business: A Complete Guide

Certificate of Commencement of Business: A Complete Guide

Starting a business in India involves more than just registering a company name and opening a bank account. One of the most important legal steps for companies with share capital is obtaining a Certificate of Commencement of Business, as mandated by the Companies Act, 2013.

This certificate ensures that the company has met all preliminary legal requirements and is authorised to begin operations. It also helps maintain transparency, prevent fraudulent incorporations, and validate a company’s legal status in the eyes of regulators and stakeholders.

In this blog, we’ll walk you through everything you need to know about the Certificate of Commencement of Business- including its definition, significance, legal background, eligibility, documents required, filing procedure, and the consequences of non-compliance.

Table of Contents

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:

Up to ₹1,00,000 ₹200
₹1,00,001 to ₹4,99,999 ₹300
₹5,00,000 to ₹24,99,999 ₹400
₹25,00,000 to ₹99,99,999 ₹500
₹1 crore and above ₹600

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

rize image

Register your Business at just 1,499 + Govt. Fee

Register your business
rize image

Register your Private Limited Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your One Person Company in just 1,499 + Govt. Fee

Register your business
rize image

Register your Business starting at just 1,499 + Govt. Fee

Register your business
rize image

Register your Limited Liability Partnership in just 1,499 + Govt. Fee

Register your business

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

Which Company Needs a Certificate of Commencement of Business?

All companies incorporated after November 2, 2018, are required to obtain a Certificate of Commencement of Business.

How to Download Certificate of Commencement of Business?

You can download the Certificate of Commencement of Business after your application (Form INC-20A) is approved.Here’s how:

  1. Login to the Ministry of Corporate Affairs (MCA) portal.
  2. Go to the MCA Services section.
  3. Click on View Public Documents.
  4. Enter your company’s CIN (Corporate Identification Number).
  5. Look for the approved Form INC-20A and download the certificate attached to the filing.

What is the Difference Between Incorporation and Commencement Certificate?

  • Certificate of Incorporation: This is issued when a company is legally created. It proves the company exists as a legal entity under the Companies Act.
  • Certificate of Commencement of Business:
    This is issued after the company fulfills specific post-incorporation requirements (like depositing the minimum share capital and verifying the registered office). It authorises the company to start business operations and borrow money.

Why is a Commencement Certificate Required?

A Commencement Certificate is important because:

  • It ensures the company has met its initial legal and financial commitments.
  • It prevents fraudulent incorporations by making sure real business intent is established.
  • It validates the company’s status with regulators, banks, investors, and other stakeholders.
  • Without it, a company cannot legally start business activities or raise funds, and risks penalties or even strike-off by the Registrar of Companies (ROC).

Mukesh Goyal

Mukesh Goyal is a startup enthusiast and problem-solver, currently leading the Rize Company Registration Charter at Razorpay, where he’s helping simplify the way early-stage founders start and scale their businesses. With a deep understanding of the regulatory and operational hurdles that startups face, Mukesh is at the forefront of building founder-first experiences within India’s growing startup ecosystem.

An alumnus of FMS Delhi, Mukesh cracked CAT 2016 with a perfect 100 percentile- a milestone that opened new doors and laid the foundation for a career rooted in impact, scale, and community.

Read more

Rize.Start

Hassle free company registration through Razorpay Rize

in just 1,499 + Govt. Fee
With ₹0 hidden charges

Make your business ready to scale. Become an incorporated company through Razorpay Rize.

Made with ❤️ for founders

View our wall of love

Smooth onboarding, seamless incorporation and a wonderful community. Thanks to the #razorpayrize team! #rizeincorporation
Dhaval Trivedi
Basanth Verma
shopeg.in
Exciting news! Incorporation of our company, FoxSell, with Razorpay Rize was extremely smooth and straightforward. We highly recommend them. Thank you Razorpay Rize for making it easy to set up our business in India.
@foxsellapp
#razorpayrize #rizeincorporation
Dhaval Trivedi
Prakhar Shrivastava
foxsell.app
We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
TBS Magazine
Hey, Guys!
We just got incorporated yesterday.
Thanks to Rize team for all the Support.
It was a wonderful experience.
CHEERS 🥂
#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
Nayan Mishra
https://zillout.com/
Smooth onboarding, seamless incorporation and a wonderful community. Thanks to the #razorpayrize team! #rizeincorporation
Dhaval Trivedi
Basanth Verma
shopeg.in
Exciting news! Incorporation of our company, FoxSell, with Razorpay Rize was extremely smooth and straightforward. We highly recommend them. Thank you Razorpay Rize for making it easy to set up our business in India.
@foxsellapp
#razorpayrize #rizeincorporation
Dhaval Trivedi
Prakhar Shrivastava
foxsell.app
We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
TBS Magazine
Hey, Guys!
We just got incorporated yesterday.
Thanks to Rize team for all the Support.
It was a wonderful experience.
CHEERS 🥂
#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
Nayan Mishra
https://zillout.com/