Let’s Understand Capital Subscription
“When share capital is to be issued, different kinds of procedures are to be strictly followed. These rules and procedure vary from country to country and are stricter in ‘closed economies’. ”
It is mandatory in many nations that in order to start a public company, a minimum amount of subscription is necessary. Such a subscription should be mentioned in the prospectus of a company. The amount stated for allotment should be duly received in cash and the resulting allotment should be made in a proper way.The amount of minimum subscription is fixed by taking into account the amount required for procurement of property, payment of introductory expenses, reimbursement of money borrowed by the company etc.
In addition to the above factors various other factors like certain additional expenses are also to be taken into account. Nature of every kind of expenditure and the motif behind it ought to be stated properly in order to avoid legal hassles.
For example in India, if a company doesn’t receive 90 percent of issue amount from public subscription within 120 days from the date of opening the issue, the amount of subscription received has to be given back to the people in totality.
Similarly, when share capital is to be issued, different kinds of procedures are to be strictly followed. These rules and procedure vary from country to country and are stricter in ‘closed economies’. However, these days every country wants to open its economy, so much relaxation has resulted in all such regulations.
Managers of the issue, share brokers and bankers are appointed before issuing securities. An application is also filed with the registrar of the company. The application forms are got printed and sent to the brokers. The public at large is also told about the forthcoming issue trough various means of publicity
The applications are received along with the application money through the bankers of the issue. The shares are allotted after the close of the issue. If there is some over subscription of the issue then allotment is made in consultation with the stock exchange.
If it so happens that the total number of applications is less than the minimum prescribed subscription, the allotment has to be cancelled. Even more, the money that was collected for this purpose is also returned.
Author - DeeKay
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