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CA Intermediate · Corporate and Other Laws · Prospectus and Allotment of Securities

Kaveri Textiles Ltd, an unlisted public company, issued a prospectus inviting subscription to its shares. The minimum subscription stated in the prospectus was not received within the prescribed period after the issue of the prospectus. Applicants have already paid application money. What is the correct legal position?

Where the minimum subscription is not received within the prescribed period, no allotment can be made and all application money must be refunded. If repayment is delayed beyond the prescribed time, the directors become jointly and severally liable to repay with interest. The Board cannot reduce the minimum subscription.

  1. AThe company may allot shares to the applicants received, and refund the balance later
  2. BThe company must refund all application money received, and if not repaid within the prescribed time, directors are jointly and severally liable to repay with interestCorrect
  3. CThe Board may reduce the minimum subscription by resolution and proceed with the allotment
  4. DThe company may retain the money until the next financial year and then allot the shares

Explanation

If the minimum subscription is not received, the company cannot allot, and all application money must be refunded within the prescribed time. If the company fails to repay within that time, the directors are jointly and severally liable to repay with interest at the prescribed rate. The Board cannot unilaterally lower the minimum subscription stated in the prospectus.

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