Minimum Subscription, Allotment of Shares and the Share Certificate

Section 39 of the Companies Act, 2013 lays down the ground rules a company must follow before it can validly allot shares offered to the public. Minimum subscription is the minimum amount which, in the Board's own stated opinion in the prospectus, must be raised through the issue to meet the company's stated requirements — such as the price of any property purchased, preliminary expenses, and working capital — and SEBI's regulations additionally fix a floor of ninety per cent of the issue as the minimum subscription that must actually be received. If this minimum subscription is not received within the period stated in the prospectus, the company cannot proceed to allot any shares at all, and every rupee of application money already received must be refunded to applicants within the prescribed time (fifteen days, under SEBI's regulations); a company that fails to refund in time becomes liable to repay the money together with interest at the rate prescribed (fifteen per cent per annum), and its directors who are knowingly a party to the default become personally liable as well.

Once minimum subscription is secured, allotment is the act by which the company's Board (or a duly authorised allotment committee) appropriates a specific number of shares to a particular applicant in response to that applicant's own application — turning an applicant into a shareholder for the first time. A letter of allotment is issued to every successful applicant, evidencing the shares allotted pending the issue of the formal share certificate, while a letter of regret, accompanied by a refund of the application money paid, is sent to an applicant who receives no shares at all or fewer shares than applied for. Within thirty days of making any allotment, the company must file a return of allotment, in the prescribed Form PAS-3, with the Registrar of Companies, giving full particulars of the shares allotted and the persons to whom they were allotted. …