A minimum subscription is the essential term of an organization. In common word minimum subscription is the amount of money to be raised by share subscription in order to provide for specified matters such as-
- The price is to be paid for acquiring any property or for repaying a loan incurred for the property or paying for property already purchased.
- Preliminary expenses, or any loan in connection therewith, and
- Working capital.
This minimum amount is stated by the promoters of the company in the Articles of Association and prospectus according to the Companies Act. Unless the minimum subscription is raised the company cannot make an allotment of shares.
Definition of minimum subscription
In case, the minimum subscription as stated in the prospectus is not raised within 180 days after the issue of the prospectus the entire amount received from the share applications must be returned.
In default of such and repayment within ten days, the directors make themselves jointly and severally liable for repaying the full amount with interest of 7% per annum from the expiry of 190 days after the first issue of the prospectus. Moreover, any allotment in violation of the Companies Act shall be void.
Minimum subscription refers to the smallest amount required by the company for its preparatory functions. It has been provided by the Companies Act, that the firm must obtain applications for a certain minimum number of shares before progressing ahead with the allotment of shares in order to deter companies from commencing business with scarce resources. This is called the ‘minimum subscription’. The limit of the smallest subscription is 90% of the size of the subject.
The smallest number of protection may be employed for any new issue. The Companies Act of 1956 created a legal pattern for this, stating that an organization can only offer a certain quantity of shares to the public that the company can really pay for if the shares are drawn in by the buyer.
Minimum subscription is the term whichever is used to represent the amount of the investment which has to be subscribed or more the shares can’t be declared if it is not being promised. The company which is offering the shares to the citizens then sets a specific amount for the signature which can be considered by the public in order to assign the shares.
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