The minimum subscription is the value which in the opinion of the Board of Directors of the company must be raised by the issue of those shares which are offered to the public for subscription [section 69(1)]. The significances of raising the minimum subscription are:-
- The purchase price of any property required by the company is to be paid out of the proceeds of the issue.
- If the company borrowed money for purchase of property or for preliminary expenses, then the repayment is done by the subscribed money.
- Any commission payable for sale of shares is paid out of the proceeds of issue.
- It acts as a working capital of the company.
- Other expenses are also met by this amount.
The reason behind the provision of minimum subscription is to protect the company from the disadvantages of starting the business without adequate financial resources. This also acts in the form of investor protection measure because if the company is unable to receive the minimum subscription, then it has to refund money collected from the application.
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