Company : Minimum subscription and Preliminary expenses

Minimum Subscription [section 39(1) of Companies Act 2013] and Preliminary expenses  

Hey guys,

Welcome back!!!

I know you are here to know more about companies and want yourself enrich with a vast and rich knowledge about subscription of shares and important issues of companies…

I know, you love to know every single information about Companies and Companies Act, so I thought to write an another related article on shares which will keep your interest into companies and will keep yourself enrich with provisions of Companies Act.

Before start talking to on the topic I would like to thank you!! As you people loved the previous articles written on shares and share capital etc. This motivates me to share my knowledge with you…… thank you once again…..

Now the wait is over!!!!!!! I am discussing about the minimum subscription which is covered under section 39(1) of companies act as well as under provisions of SEBI.

Ok….now listen carefully…

Minimum Subscription:  

it is simple to understand…. company issues shares for raising funds from public. The Public show their interest by paying application money for shares.  SEBI, securities and exchange board of India, which regulates listed companies prescribes that if any listed company is going for public issue of shares, that company must receive minimum subscription of at least 90% of the total issue before it allots the share. If it fails, then the whole issue will be rejected and company will have to refund the application money within 15 days from closure of the issue.

Sounds simple??????.......no!!!!!!!!

Then listen again… company should receive a minimum subscription of at least 90%. If it fails then it should return the whole money which it received from the public within 15 days..,.. 

Sounds simple!!! yeaaaaahh!!!!!!

And as per Companies Act the minimum subscription is that minimum amount which must be subscribed and should also be stated into prospectus of the company.  

Ok…guys now I am moving to preliminary expenses. So listen carefully it is also an important topic to be discuss.

Preliminary expenses:  

If you are thinking about to make a company then you should also aware that you have to spend your money for its incorporation.

These expenses may be of registration fees, legal fees; expenses arise in issue of shares etc. These expenses are necessary for making a company or to incorporating a company as per companies act. Since these expenses are incurred prior to incorporation of the company so these are called preliminary expenses.

Now here is a question what we should do for these preliminary expenses? How should we treat it in accounts?

Then listen…we should write off these expenses from Security Premium Reserve as per section 52 of companies act or from statement of p&l.                                                                                                                                                                                                        

Entry will be:  Security Premium Reserve             dr.

                            Statement of Profit & loss             dr.

                                     To preliminary expenses

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Thank you for your love and support

Shivam garg

Team Go commerce

                     

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