MOA Subscription Money

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Bharat Hegde

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Jul 9, 2010, 5:26:56 AM7/9/10
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Dear All,
 
Please guide me on the following:
 
Is there any time limit for the subscribers to MOA to bring the cash or consideration for the shares subscribed by them?
 
With Regards,
 
Bharat Hegde

Anantha...@lifestylestores.com

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Jul 9, 2010, 5:47:08 AM7/9/10
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No upper limit
Lower limit as prescribed under companies act for pvt. co, and public company

With Regards

N Anantha Murthy
Corporate Legal & Secretarial
Lifestyle International Private Limited
8th Floor, Delta Tower
Sigma Soft-tech Park
No.7, Whitefield Main Road
Bangalore - 560 066
LandLine: 080 41882032
Mob: 99014 90053


Bharat Hegde <bharath...@gmail.com>
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07/09/2010 03:09 PM

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[CSMysore] MOA Subscription Money


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Bharat Hegde

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Jul 9, 2010, 8:41:33 AM7/9/10
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Dear Mr.Anantha,
 
Thanks for your reply. I wanted to know the Time Limit, for ex. can a subscriber pay the consideration for the shares subcribed by him after 1 year from the date of incorporation.
 
With Regards,
 
Bharat Hegde

Anantha...@lifestylestores.com

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Jul 10, 2010, 1:35:49 AM7/10/10
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Dear Bharat

I presume that your question relates to payment of subscription money by the subscriber to the Memorandum.

To my knowledge, the subscription money should be paid by the subscriber who subscribes to the Memorandum, immediately on incorporation of the Company, for the reason that  minimum paid-up capital should be in existence upon incorporation of the company to ensure compliance with the companies act, 1956, which prescribes min. paid up capital for pvt. / public companies.

Further, share allotment cannot be made unless the share application / subscription money is received from the applicant / subscriber.

Hope this meets with your requirement

With Regards

N Anantha Murthy
Corporate Legal & Secretarial
Lifestyle International Private Limited
8th Floor, Delta Tower
Sigma Soft-tech Park
No.7, Whitefield Main Road
Bangalore - 560 066
LandLine: 080 41882032
Mob: 99014 90053


Bharat Hegde <bharath...@gmail.com>
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07/09/2010 06:23 PM

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Re: [CSMysore] MOA Subscription Money


Thirupal Gorige

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Jul 10, 2010, 2:05:20 AM7/10/10
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Dear Friends,
 
Refer section 36(2) of the Companies Act.
 
Thanks and Regards
G.Thirupal
Company Secretary
# 13/22, 1st Cross, Krishnamurthy L/O
Tavarekere Main Rd, DRC POST
B'lore-560029
Call: 94483 84064 
 


--- On Sat, 10/7/10, Anantha...@lifestylestores.com <Anantha...@lifestylestores.com> wrote:

Mani

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Jul 11, 2010, 5:33:42 AM7/11/10
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I refer to the discussion in this group on the above subject.
 
A subscriber's liability is a subsisting liability till the amount is fully paid by him. The minimum paid up capital clause imposes a liability on the members to ensure that the minimum capital maintenance requirements are met after incorporation. Again, the company should legally enforce this obligation if the subscribers are unwilling to shell out even the minimum amount. In respect of the balance amount,if any, the company can in a similiar manner enforce this obligation.
 
The liability on the subscriber to pay for the shares subscribed by him  can be enforced as a a civil liability in a court of law. On the contrary what will be the situation if a subscriber wants to remit the money and the company is unwilling to issue shares? Can he say that the company is his  debtor in respect of the shares subscribed by him? The answer is no.
 
Such a situation can also be a matter of judicial intervention to be enforced by a court order.
 
For the reasons already given in the trailing mail sent to another group of company secretaries a year ago, one shall not impute debtor creditor relationship to a subscriber  to the memorandum of a company since both the parties are under a statutory obligation to pay for the shares and issue the shares for the consideration received.
 
Please note that the company is not  in existence at the time of signing the memorandum by a subscriber. Firstly,there is no monetary or any other consideration whatsoever which passes on to a subscriber when he signs the memorandum of association to create debtor creditor relationship .Secondly the company is a non existent legal entity when the memorandum of association is signed.
 
Thirdly,since an agreement to issue shares on incorporation is a special type of transaction with a legal entity which comes into life only on the issue of certificate of incorporation, it  nevertheless casts mutual rights and obligations on both the parties. Such a relation ship ,in my view, does not fall under the category of a debtor and creditor.
 
Please see Table B of the Schedule I to the Act. The subscribers expresses their desire to be formed into a company and also agree to take the shares subscribed by them. I am unable to find anything which implies that  debtor creditor relationship exists between the company under incorporation and the subscribers who have signed it memorandum.
 
 
It is a special type of civil  agreement between the parties which comes into effect only on the incorporation of a company under the Act. Mere signing the documents will not be sufficient to enforce the agreement unless the Registrar issues the certificate of incorporation.
Regards,
Mani
 
 
 
Regards,
 


 
---------- Forwarded message ----------
From: Mani <share...@gmail.com>
Date: Mon, Jun 22, 2009 at 7:31 PM
Subject: Re: [CS_yahoogroups) subscriber to MOA
To: company_...@yahoogroups.com


 

Friends,

 

Whether the substratum of a company is lost or not is a question of fact to be decided on various surrounding facts and circumstances. For example, when the main business of the company is prohibited by operation of law and it is impossible for the company to carry any other business as per its MoA, then it can be said that the substratum is lost. When major assets of a company are lost in any accident or otherwise, and there is no possibility of carrying on the business,then one can conclude that the sub stratum is lost.

 

Failure of subscribers to pay the amounts towards the shares subscribed them does not mean that the substratum is lost.

 

If such a view is taken, the employees, creditors and general public who have entered into various contracts, obligations/transactions with the Company will be put in a rather disadvantageous position. Such a view will encourage unscrupulous persons to form companies with huge subscribed capital,raise money from the public  and then repudiate their obligation to honour their commitments  with impunity.

 

 

Mere failure to pay for the shares undertaken to be paid by the subscriber at the time of formation of a company shall not therefore be construed as loss of substratum. The company should exhaust all the legal remedies to enforce the statutory obligation on the part of the subscriber to pay for the shares subscribed by him.

 

When a person subscribes his name to the memorandum of association and agrees to pay for the shares subscribed by him a statutory obligation arises between him and the company immediately on its incorporation.

 

A subscriber’s liability is therefore a subsisting liability till the agreed amount is paid or the liquidation process is completed.

 

A conjoint reading of sections 41,426 and 428 of the Act supports the above view.

 

The process of incorporation is a classical example of “fiction of law”. When a person undertakes to pay for the shares subscribed him, the company is not in existence. The RoC, who issues the certificate on the basis of the duly executed memorandum of association which includes the subscription clause, is definitely not a party to the transaction.

 

Even though the words “agree to take” occurs in the subscription clause of Table B of Schedule A to the Companies Act, 1956, in fact, there is no agreement at all since the company was not  in existence at the time of execution of memorandum and the certificate of incorporation is always issued after the memorandum and other documents are duly executed.

 

 

 

Can we conclude that the subscriber enters into a contract with a company agreeing to pay for the shares when the company is not yet born? The process of incorporation being a legal process is totally different from what is known as pre incorporation contracts.

 

 Even in respect of such pre incorporation contracts, the promoter enters into a contract with a third party on behalf a company yet to be formed. Here, at the time of formation, there is no other party involved. The RoC on being “satisfied” that the requirements of the Act are fulfilled issues the certificate of incorporation which gives legal life to the artificial entity with limited liablility.

 

I therefore prefer to use the term “statutory obligation” rather than contractual obligation to describe the legal effect of subscription clause in the memorandum of association of a company limited by shares.

 

It is an obligation imposed by the Statute on the subscribers to pay for the shares subscribed and the company to issue such shares.

 

The subscription clause in the MoA casts a legal obligation to issue the subscribed shares on the company and the subscribers to pay for such shares.This transaction  cannot  be called as the relationship between a debtor and his creditor even though section 36(2) is widely worded .

 

If we construe it as the debt recoverable from the subscribers under section 36(2), what is the nature of right of a subscriber to acquire the shares subscribed by him from the company on its incorporation?

 

When both the parties (the subscriber to the memorandum & the company) are under obligation to pay for the shares and issue of the shares respectively,how can the company unilaterally  recover the amount due on shares subscribed as a debt?

 

I am left with no alternative but to conclude that the subscription clause does not create any debtor /creditor relationship between the subscribers and the company under incorporation. It creates only a legal obligation on both the parties based on equitable consideration to be honoured by them after the company is born.

 

Being a statutory obligation,either party can approach the civil court of competent jurisdiction to enforce their respective rights. It means the company has the right to ask for money against the shares subscribed by the defaulting subscriber to the MoA and issue the shares on receipt of the amount. In the event, the company declines to issue the shares, the aggrieved subscriber can enforce his rights in the same manner.

 

Even if we agree that the amount subscribed by a subscriber to a memorandum of association is a debt, then ,it is a” pre incorporation debt”.

 

The question then arises is whether section 36(2) could be invoked in respect of debts incurred before the company was born. Thus, applying section 36(2)  in the present case, creates more problems.

 

One should not forget that capital maintenance clauses are always sacrosanct in any company law jurisdiction in the world.In order to satisfy the requirements relating to the minimum number of members on incorporation and to enforce the liability of subscribers who have not paid their subscribed amounts, the subscribers to a memorandum have been brought within the  definition of  a member under section 41.Read with sections 426 &428 of the Act, the legislative intention is clear. Otherwise, there will be promoters without any liability and the legislative intent of limited liability concept will become infructuous.

 

If the company does not pursue the legal remedy against the subscriber in default  to recover the moneys against the shares subscribed by him,or delays such a course of action with malafide intentions or acts in a collusive manner with the subscribers to delay the payment of money towards the subscribed shares, an affected party whether a creditor or any other member can approach the civil court for enforcing this legal obligation.

 

 

I am unable to agree with the suggestion regarding issue of share certificates when the total subscription money is outstanding or making any accounting entries without approaching the court of law to enforce the obligations on the subscribers. There cannot be any issue/allotment of shares without some consideration in advance except in the case of issue of bonus shares.

 

The courts can order arrest of a contributory under section 479 of the Act under any of the circumstances mentioned in that section. The definition of a contributory means every person liable to contribute to the assets of a company in the event of its being wound up.

 

A subscriber’s liability is therefore a civil liability to pay for the shares as long as the company is a going concern. When the company comes under liquidation, the subscriber to its memorandum who has not fully taken the shares subscribed by him will be hit by section 479 if his intentions are not good since he is liable to pay for the shares subscribed by him.

 

Thus civil liability during the period when the company is a going concern and and criminal liability at the time of liquidation looms at large on the subscriber who gleefully signs the memorandum without understanding the legal implications.

 

Though there are no specific sections relating to the liability of a subscriber in this regard, the Act as it stands today, provides adequate safeguards against an unscrupulous subscriber who wants to evade his liability.

 

The company can therefore approach the civil court of competent jurisdiction to enforce the obligation of the subscriber in default to pay for the shares subscribed by him.

 

Recently, I interacted with a partner of one of the biggest accounting firms in the country.

 

In that case, the company had a few hundred millions of authorised capital which was  fully subscribed at the time of incorporation by the parent company and its subsidiary abroad.

 

The auditors insisted that entire subscribed capital should be paid up even though the company had the minimum paid up capital.

 

Finally when the matter came to me, I asked the partner of the audit firm to show me any provisions in the Act to that effect   or   any Judgement to substantiate their argument.

 

They had no other option but to drop the objection since the company was running its business efficiently and did not require any more funds from the subscribers.

 

The situation should therefore be examined in its totality before coming to any conclusion.

 
Regards,
Mani

 

 

 



On Sat, Jun 20, 2009 at 2:56 PM, Dholakia Company Secretary <dholakia_com...@yahoo.co.in> wrote:


Dear Mr. Kumar,
 
Your views are absolutely correct. What I was discussing is about the methodology for forfeiture of shares of the subscribers as suggested by Mr. Yogan.  What we do is to issue share certificattes to the subscribers as and when they pay subscription amount.  There is no issue or allotment.  When there is no allotment or issue of shares the question does not arise of forefeiting the right or shares of the subscribers. 
 
if the subscribers does not pay (as stated by Mr. Yogan below) then in that event the subscriber is taking calculative risk to be asked to pay  by the liquidator as and when company goes for liquidation.
 
thanks
 
cs b v dholakia

Dholakia & Associates
Company Secretaries
MHB-11, Room No. 302,
3rd Floor, Shree Sarvodaya Co operative Housing Sco
Near Bhavishya Nidhi Building, Service Road,
Kher nagar
Bandra (East),
Mumbai - 400 051.
 
Tel. Nos. 26 58 03 09 / 26 47 62 80
 


--- On Sat, 20/6/09, KUMAR JAGADEESAN <kmrjag...@yahoo.com> wrote:

From: KUMAR JAGADEESAN <kmrjag...@yahoo.com>

Subject: Re: [CS_yahoogroups) subscriber to MOA
To: company_...@yahoogroups.com
Date: Saturday, 20 June, 2009, 2:21 PM

Dear Shri.Dholakia
 
We have earlier in this forum had debated on issue and allotment of shares to subscribers and the conclusion was that no allotment was necessary for the initial subscribers and no Form 2 need to be filed for the same. If certifcates have not been issued let us issue the same and forfeit them. The provision relating to minimum application money under sec...69 would not be applicable in this case and the Amount paid on the certificates can be shown as NIL.
 
I believe it would be proper
 
J.KUMAR
Hyderabad 

--- On Sat, 20/6/09, yoganand l <cs.yogan@gmail. com> wrote:

From: yoganand l <cs.yogan@gmail. com>
Subject: Re: [CS_yahoogroups) subscriber to MOA
To: company_secretary@ yahoogroups. com, "CharteredSecretari es" <CharteredSecretarie s@yahoogroups. co..in>

Date: Saturday, 20 June, 2009, 12:14 PM

in one case that i have dealt sometime back, an IAS officer signed the subscription sheet on behalf of a state government. later on the state government decided not to act upon the project. and the other subscribers took the complete initiative and funded the project without the involvement of the state govt. now what is the fate of such situations.. .
 
 
yogan.
 


 
On Fri, Jun 19, 2009 at 3:08 PM, Dholakia Company Secretary <dholakia_companysec retary@yahoo. co.in> wrote:


Forfeiting is a good idea. But how it can be implemented. Share certificates are not issued.  Unless the amount is received company cannot issue share certificate.  It is not the right of the subscriber but an obligation to pay.   I do not think that obligation can be forefeited. 
 
Could you please throw light or expand your views. 
 
thanks
 
cs b v dholakia

Dholakia & Associates
Company Secretaries
MHB-11, Room No. 302,
3rd Floor, Shree Sarvodaya Co operative Housing Sco
Near Bhavishya Nidhi Building, Service Road,
Kher nagar
Bandra (East),
Mumbai - 400 051.
 
Tel. Nos. 26 58 03 09 / 26 47 62 80
 


--- On Fri, 19/6/09, kmrjagadeesan@ yahoo.com <kmrjagadeesan@ yahoo.com> wrote:

From: kmrjagadeesan@ yahoo.com <kmrjagadeesan@ yahoo.com>
Subject: Re: [CS_yahoogroups) subscriber to MOA
To: company_secretary@ yahoogroups. com
Date: Friday, 19 June, 2009, 1:33 PM

Dear friends
 
Subscriber becomes a member immediately on subscribing his name and any amount due on the amount subscribed becomes debt due to the company. True he is a contrbutory but that comes at the time of winding up. The company can invoke its right to forfeit the shares and allot it to some one else. I do not think  any sub stratum gets affected as it is a private limited company and the number of members exceed the minimum prescribed. Moreover any subscriber has been denied specifically to resile from his contract of subscription in the Act.
 
J.KUMAR
Hyderabad
 

--- On Wed, 17/6/09, shilpi khandelwal <shilpi_1985cs@ yahoo.co. in> wrote:

From: shilpi khandelwal <shilpi_1985cs@ yahoo.co. in>
Subject: [CS_yahoogroups) subscriber to MOA
To: 19thrsmtp@yahoogrou ps.com, young_companysecret aries@yahoogroup s.com, company_secretary@ yahoogroups. com

Date: Wednesday, 17 June, 2009, 9:26 PM

Dear all,
 
I had a query:
 
Name of the co. :- ABC Privte Limited
There are 4 subscribers to MOA/AOA
 
They all are director also.
 
now one of the subscriber say Mr. A has not paid the subscription mony neither any shares are  alloted to him  by the co.and he has resigned from the board also.
 
Mr. A does not have any intention to pay subscription money.
 
Now what is the option left for the co..
 
Request you all to pls solve the same.
 
Regards,
Shilpi Khandelwal

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Mani Srinivasan,M.Com, AICWA,FCS, ACIS(UK),LL.B
A 3/8 Triveni Apartments
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