Q.What is meant by "Minimum Subscription"?
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Let’s start with something you already know from everyday life.
Imagine you and two friends decide to start a small business — say, a tiffin service. You agree that each of you will contribute ₹5,000. But one friend says, “I’ll pay my ₹5,000 only after we’ve already started cooking.” That creates a problem: you need the money before you buy ingredients. If too many people delay their payments, you might not have enough cash to begin at all.
In the world of companies, the same logic applies. When a company invites the public to buy its shares, it cannot start using that money until it is sure that a minimum amount has actually been collected. That minimum amount is called the Minimum Subscription.
What the NCERT textbook says
According to the Companies Act, 2013 (and as stated in your NCERT Class 12 Accountancy textbook), Minimum Subscription is the minimum amount that a company must receive from the public before it can proceed with the allotment of shares. If this amount is not received, the company cannot allot any shares, and the entire application money must be refunded.
The law fixes this minimum at 90% of the issued amount (the total value of shares offered to the public). For example, if a company issues shares worth ₹10,00,000, it must receive at least ₹9,00,000 as application money before it can allot shares.
Minimum Subscription = 90% of the amount issued to the public.
If not met → no allotment → full refund to applicants.
Why does this matter?
Three reasons:
- Protects the company – It ensures the company has enough working capital to start operations. If only 40% of the public subscribes, the company would be undercapitalised.
- Protects the investors – If the company fails to raise the minimum, investors get their money back. They are not stuck with shares in a company that cannot even begin business.
- Legal compliance – The Companies Act makes it mandatory. Non-compliance can lead to penalties.
Accounting treatment — what gets debited and credited
When the company receives application money, it records it as a liability (because it owes the shares to the applicants). The journal entry is:
On receiving application money:
- Debit: Bank Account (with the total amount received)
- Credit: Share Application Account (with the same amount)
Now, if the total application money received is less than 90% of the issued amount, the company cannot allot shares. It must refund the entire amount. The entry then is:
On refund:
- Debit: Share Application Account (with the total amount received)
- Credit: Bank Account (with the same amount)
If the minimum subscription is met (i.e., 90% or more is received), the company proceeds to allotment. The Share Application Account is then transferred to the Share Capital Account (for the amount due on application) and any excess application money is adjusted against allotment or refunded.
The Share Application Account is a temporary account. It is closed once allotment is made or money is refunded.
Where does this appear in the final accounts?
Minimum Subscription itself is not a separate line item in the Balance Sheet or Profit & Loss Account. It is a condition that must be satisfied before allotment. However, the Share Capital shown in the Balance Sheet is only recorded after allotment — and allotment happens only if minimum subscription is met.
In the Notes to Accounts (under Share Capital), the company discloses the number of shares applied for, allotted, and the amount received. But the textbook does not prescribe a separate proforma for Minimum Subscription. The relevant format is the Share Capital schedule in the Balance Sheet. …
A company cannot allot shares off an under-funded issue — the law insists on a floor amount being raised first.
Minimum subscription is the least amount that must be subscribed by the public before a company can allot any shares on that issue. …
Minimum subscription, under Section 39 of the Companies Act, 2013, is the least amount of capital that a public company must actually raise from the public before it is permitted to allot any shares on that particular issue. The figure is stated in the prospectus itself. The rule exists to ensure that a company does not begin operating on an inadequate or uncertain capital base — allotting shares regardless of how little of the issue was subscribed would leave the company under-capitalised and would mislead the few investors who did apply. If the amount stated as the minimum subscription is not received within the period mentioned in the prospectus, the company cannot proceed with allotment at all on that issue, and it must refund every rupee of application money received, …
Students sometimes assume the company can allot whatever portion of shares was actually applied for even if the minimum subscription is not reached. Falling short blocks allotment …
- CBSE 2026Set ANNUAL1 markQ.What percentage of issued shares is required for minimum subscription according to SEBI?
›Reveal solutionSolution
Minimum subscription as per SEBI guidelines is 90% of the issued shares/amount.
Minimum subscription is the minimum amount (expressed as a percentage of the total issue) that a company MUST receive in applications before it is legally permitted to make any allotment of shares. This rule protects investors from money being locked into a company that fails to raise adequate capital to start/run the proposed project.
As per SEBI (Securities and Exchange Board of India) guidelines, a company must receive subscription for at least 90% of the issued amount (i.e., 90% of the shares offered to the public) before it proceeds with allotment.
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- CBSE 2026Set ANNUAL1 markQ.Give the meaning of 'minimum subscription'.
›Reveal solutionSolution
Minimum subscription is the floor amount a company must actually receive from applicants before it is legally allowed to allot any shares at all.
Minimum subscription refers to the minimum amount which, in the opinion of the company's directors, must be raised through the issue of shares in order to meet certain essential needs of the business, such as:
- The purchase price of any property/assets to be acquired,
- Preliminary expenses and underwriting commission,
- Repayment of any money borrowed for the above purposes, and
- Working capital requirements for the initial period of operation.
This figure must be disclosed in the company's prospectus (SEBI regulations typically require it to be at least 90% of the issue size for a public issue). If the company does not receive applications for at least this minimum amount within the prescribed time (usually 30 days of the issue closing, as per SEBI/Companies Act rules), it cannot proceed with the allotment of any shares at all — all application money received must be refunded in full to the applicants.
…
- CBSE 2025Set ANNUAL1 markMCQQ.The minimum subscription of a public company should be (A) 90% of issued capital (B) 50% of issued capital (C) 25% of issued capital (D) 10% of issued capital.
›Reveal solutionSolution
Minimum subscription is 90% of the issued capital — option (A).
Minimum subscription is the minimum amount which, in the opinion of the directors, must be raised by the issue of shares so that the company has enough funds to carry on its business. A company cannot proceed to allot shares unless it has received the minimum subscription. As per SEBI guidelines, the minimum subscription is fixed at **90% of the entir …
- CBSE 2024Set 67/3/11 markMCQQ.Minimum subscription for allotment of shares as per Securities and Exchange Board of India (SEBI) guidelines cannot be less than 90% of which of the following capital ? (A) Reserve Capital (B) Nominal Capital (C) Subscribed Capital (D) Issued Capital
›Reveal solutionSolution
Minimum subscription, as per SEBI guidelines, cannot be less than 90% of the Issued Capital.
Minimum subscription is a crucial concept in company law and securities regulation, particularly when a company offers its shares to the public. It refers to the minimum amount of capital that a company must receive from share applications before it can proceed with the allotment of shares.
The primary purpose of minimum subscription is to protect investors and ensure the viability of the company's project. If a company fails to raise a substantial portion of the capital it intended to issue, it might not have sufficient funds to commence operations, purchase necessary assets, or meet its working capital requirements. This could put the investors' money at risk. To prevent such situations, regulatory bodies like the Securities and Exchange Board of India (SEBI) mandate a minimum subscription threshold.
According to SEBI guidelines, a company cannot allot shares unless it has received applications for at least 90% of the capital it has offered to the public for subscription. If this condition is not met within a specified period (usually 60 days from the date of opening the issue), the company must refund the entire application money received to the applicants, typically within 15 days of the closure of the issue.
Let's examine the given options in the context of minimum subscription:
- (A) Reserve Capital: This is a portion of the uncalled share capital that a company decides, by special resolution, not to call up except in the event of its winding up. It is a contingent reserve and has no direct bearing on the initial public offering or the minimum funds required for allotment.
- (B) Nominal Capital (or Authorised Capital): This is the maximum amount of share capital that a company is legally authorised to issue as per its Memorandum of Association. A company rarely issues its entire authorised capital at once. Minimum subscription is concerned with the capital currently being offered, not the maximum possible. …
- CBSE 2024Set ANNUAL1 markQ.According to SEBI guidelines, the 'minimum subscription' of the capital should not be less than what percentage of the issued amount?
›Reveal solutionSolution
Minimum subscription, per SEBI guidelines, must be at least 90% of the issued amount.
Minimum subscription is the minimum amount that, as stated in the prospectus, must be subscribed by the public before a company can proceed to allot any shares. SEBI (Securities and Exchange Board of India) guidelines require that this minimum subscription figure must not be less than 90% of the issued amount (of that particular issue). This safeguard exists so that a company does not go ahead and start operating on an inadequate, half-raised capital base.
…
- CBSE 2024Set ANNUAL1 markMCQQ.On an ordinary share of Rs. 50, the minimum amount of application money under the Companies Act, should be ________ is referred to as Calls-in Arrears. (A) Rs. 2.50 (B) Rs. 5.00 (C) Rs. 6.00 (D) Rs. 12.50
›Reveal solutionSolution
5% of the Rs. 50 face value works out to Rs. 2.50, so (A) is correct.
As per the Companies Act and SEBI (ICDR) guidelines, the amount payable on application for a share must not be less than 5% of the nominal (face) value of the share. This is the statutory minimum application money.
Calculation for a share of face value Rs. 50:
Minimum Application Money = 5% × Rs. 50 = Rs. 2.50
Checking the options:
- (A) Rs. 2.50 = 5% of 50 ✓ (matches the statutory minimum)
- (B) Rs. 5.00 = 10% of 50
- (C) Rs. 6.00 = 12% of 50 …
- CBSE 2022Set MARCH1 markMCQQ.If the company does not receive subscription for at least _________ of the public issue, then share issue would be cancelled.(a) 50%(b) 75%(c) 90%(d) 100%
›Reveal solutionSolution
Minimum subscription is 90% of the issued amount. If the company does not receive applications for at least 90% of the public issue, no allotment is made and the application money is returned.
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- CBSE 2022Set ANNUAL1 markQ.What is Prospectus? Or What is minimum subscription?
›Reveal solutionSolution
Prospectus = the public invitation document disclosing the company's details to prospective investors. The Or asks for minimum subscription — the minimum that must be raised before allotment.
A prospectus is any document described or issued as a prospectus inviting offers from the public for the subscription or purchase of shares or debentures of a company; it must disclose prescribed information so investors can make an informed decision.
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