Minimum Subscription and Liability for Misstatements

Minimum Subscription. Section 39 of the Companies Act, 2013 requires that no allotment of shares can be made on a first offer to the public unless the amount stated in the prospectus as the minimum subscription has actually been subscribed, and the application money on it has been received. This is meant to make sure the company begins operations only with a genuinely adequate base of capital. If the minimum subscription is not received within the period specified in the prospectus, the company must refund the entire application money received, within the time limit prescribed by the rules; if it fails to do so, the amount becomes repayable with interest.

Liability for Misstatement in a Prospectus. Because a prospectus is the document on the strength of which members of the public part with their money, the law treats a false or misleading statement in it very seriously. A person who subscribes for shares or debentures on the faith of an untrue statement in a prospectus can claim compensation for the loss suffered — this is a civil liability that can fall on the company, its directors, the promoters, and any expert who authorised the issue of the prospectus. Where the misstatement amounts to a fraudulent or deliberately false statement, the persons responsible additionally face criminal liability — imprisonment and/or fine — under the fraud-related provisions of the Act. …