Is receipt of subscription money a pre-condition to issuing of share certificates?

[Pratyush Khetan]

Dear all

 Is receipt of subscription money a precondition to issuing share certificates?

Share certificates have to be issued within 2 months of the date of incorporation. What happens if the money does not come in a 2 months time period? 

Thanks

PKASSO

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[Vineet Maheshwari]

Hi, 

 

Pls. note the statutory provisions of Companies Act, 2013 in this regard:

 

1) As per Section 2 ( 55) (i)  "Member", means-

 

- the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members;

- So, the date of incorporation is the date of allotment of shares to subscribers to MoA.

2) As per Section 10- Effect of Memorandum and Articles-

- Sub-section (2)- All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

- So, according to Sec. 10 (2)- the money payable by subscriber is a debts due to the Company.

3) Further, as per section 10A, subscribers need to pay subscription money (which is treated as a debt due to him/s. 10(1)) before commencement of business or 180 days of incorporation.

4) As per Section 56 (4) (a) every company shall deliver the certificate of all securities allotted within a period of 2 months from the date of incorporation, in the case of subscribers to the memorandum.

- Accordingly, company required to issue certificates and stamped the same before passing of 2 months of incorporation and it is immaterial whether the money has been received or  not  as the same is a debt due to the Company.

Hope this has clarify the issue.

Thanks

CS Vineet Maheshwari

M-9958728134

 

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[Pratyush Khetan]

Thank you Vineet, this is very useful

In this regard, a question comes to my mind

SH -1 Form has these lines... 

This is to certify that the person(s) named in this Certificate is/are the Registered Holder(s) of the within mentioned share(s) bearing the distinctive number(s) herein specified in the above-named Company subject to the Memorandum and Articles of Association of the Company and the amount endorsed herein has been paid up on each such share.    

Does the paid-up here not mean actual receipt of the money? In this context, I think the money must be received before issuing share certificates.

Thanks!

PKASSO

Chartered Accountants

+91-9844542314

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[Pratyush Khetan]

Found a link from QuestAssist ICSI as well

Pratyush Khetan 

Pratyush Khetan and Associates

Chartered Accountants

+91-9844542314

[Vineet Maheshwari]

Not agree with this, as the Act (Sec. 10A) has itself given a period of 180 days within which subscribers shall pay the subscription money.

Thanks

CS Vineet Maheshwari

[CS Bhargavi N R]

Yes unlike further issue.... in initial subscription shares can be allotted without receiving money because at the time of incorporation it is intimated that these are the first subscribers...so it is agreed that they are shareholders with fully paid up shares.

Any other views??

Regards,

Bhargavi N R 

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[Rabi Narayan]

I agree with you Bhargavi

This type of issued should not be discussed in a professional forum. 

Sorry state of affairs, 

Ignorance of basic understanding of law

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[Pratyush Khetan]

Section 10A does not prescribe the time limit to receive subscription money, it asks for a declaration that whether subscription money has been received or not. This declaration needs to be filed 180 days from the incorporation date.

Sometimes, the subscription money can take time to come for genuine reasons. At least 3 months time from incorporation we have seen with our clients in FDI cases. Therefore providing 6 months' time for this declaration is a welcome move by lawmakers.

However, my question was - can we issue share certificates when subscription money is not received? 

1. There is a catch-22 situation - where let's say I issue a share certificate without receiving subscription money, then within 30 days of issue, I am supposed to finish RBI FCGPR reporting and FCGPR filing cannot be done until we receive the money. 

2. SH-1 form says the amount endorsed herein has been paid up on each such share.  I believe paid up here means the amount should actually hit the bank account.

Would appreciate more comments from members.

Pratyush Khetan 

Pratyush Khetan and Associates

Chartered Accountants

+91-9844542314

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[Deepak Singhal]

Adding one point 

Paid up capital means any amount credited as paid up whether received or not. So i am also in the view that share certificate shall be issued whether money received or not ?

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Thanks & Regards
CS Deepak Singhal
Deepak Singhal & Associates
(Company Secretaries)

Address: Delegatix, Unit No.442, 4th Floor, Tower-B, Spazedge, Sector 47, Gurugram – 122 009 (Haryana)  

Contact Details: 9992693555, 0124-4081643

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[Nisha Sarayan]

I agree with Pratyush.

Section 10A is of declaration of commencement of business and not about receipt of subscription money.

THANKS & REGARDS

CS NISHA SARAYAN

nsara...@gmail.com

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[Vineet Maheshwari]

Hi,

Actually the word “Paid-up” is defined itself in CA. So, to understand whether the "Paid-up" means the money actually received in the company's account, we have to see that definition.

As per Section 2(64) of the Act, 2013 :

//“Paid up Share Capital” or “share capital Paid-up”  means such aggregate amount of money credited as paid-up as is equivalent:-

-  to the amount received as paid-up in respect of shares issued,

- and also includes any amount credited as paid-up in respect of shares of the company,

but does not include any other amount received in respect of such shares, by whatever name called. //

So, this definition of paid-up share capital can be divided into two parts:

-        First,  aggregate amount received and credited as paid-up in respect of shares issued; so here paid up amount has been received.

 

-        Second, any amount credited as paid-up in respect of shares of the company, so here paid up share capital means ‘any amount credit as paid up.’ Hence the company can credit the subscription money still not received  as paid up in the Balance Sheet of the company and which is still receivable. (Here debts from the subscriber will be shown as assets to be recoverable in the Balance sheet.)

So, the word “Paid-up” words in SH-1, includes both “the actual amount received” or “the amount still recoverable from subscribers of MoA”.

Hope this will clarify the position.

Thanks

CS Vineet Maheshwari

M-9958728134

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[Pratyush Khetan]

Thank you Vineet. So it looks like that issue of shares prior to receiving funds is not a non compliance. 

while filing fcgpr - will RBI send us for compounding stating that we have not received the money before issue of shares?

Thanks!

Pratyush Khetan 

Pratyush Khetan and Associates

Chartered Accountants

+91-9844542314

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