Company Incorporation increased by 20% in FY 20-21 despite pandemic

The Ministry of Corporate Affairs (MCA) released data on Tuesday, which shows a significant increase in the incorporation of new companies in 2020 compared to 2019. The COVID-19 pandemic forced companies to temporarily close their offices due to lockdown and adopt new ways to work like work from home for all. 

Companies found it difficult to cope with this unique situation, and many companies struggled to carry on their daily work and suffered losses. In this circumstance, one might have thought that new company registrations must have reduced this financial year. 

However, the companies incorporated from April 2020 till December 2020 in the financial year 2020-21 are increased by about 20% compared to companies incorporated between April 2019 to December 2019.

The MCA stated that it provided support to the companies during the time of the pandemic. Indeed, the MCA introduced the ‘Companies Fresh Start Scheme’ and ‘Condonation of Delay Scheme’, which condoned the company’s delay in filing returns. The MCA provided relaxation and allowed companies to hold board meetings and extraordinary general meetings through video conferences. 

The MCA provided an additional 180 days to file a declaration for business commencement by the newly incorporated companies. The MCA also removed the requirement for investing 15% of the number of debentures maturing in specified instruments for listed and non-banking financial companies. It also provided relaxation in the due dates of filing audit reports by the auditors and cost auditors.

No doubt the MCA supported the companies well during the pandemic period and eased many company compliances. But this is not the sole reason for the spike in company registration. The increase in company incorporation is unclear, but the government officials state that it may be due to the faster incorporation process. As compared to earlier, company incorporation is done online within a few hours instead of several days.

As per the MCA data, about 1.13 lakh companies were incorporated from April 2020 to December 2020 as compared to 93,758 incorporations from April 2019 to December 2019. Another reason for the increase in company incorporation for the financial year 2020-21 is the progression of smaller firms and Limited Liability Partnerships (LLPs) towards forming companies. The smaller firms and LLP converted into fully-fledged companies as their business grew along due to improved facilitation through digital services.

The increase in company incorporation is a sign of strength in the economy. As the business grows from a sole proprietorship to partnership and then to a company, reflects the positive state of the economy. The conversion of a partnership firm to a company online on the MCA portal is also one reason for incorporating more companies. 

The increase in the company incorporation post lockdown in the country shows a positive state of recovery. Whatever may be the reason for the rise in company incorporation, it certainly brings hope to the country’s economic recovery. As a result of many companies, there will be an increase in the country’s financial state in the post-pandemic period.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in