Entry for allocation of share capital

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2012 Expert,
Can subscriber to memorandum can pay cash for payment of share capital allotted at the time subscribing to memorandum ?

Ajay Mishra

Ajay Mishra (Expert)

15 June 2012 Hi

yes, they can and this money can be used as pre incorporation expenses and it will be adjusted after incorporation of company.

A person subscribing to the Memorandum shall become a member of the company on its incorporation and remains so till the company accepts his surrender of shares or he transfers shares. [U.P. Oil Mills Co. Ltd., In re (1931) 1 Comp Cas 262 (All)].

In that case, an entry in the Register of members is not necessary and mere allotment on the basis of subscription to Memorandum will suffice to constitute him as a member. Therefore, a subscriber is deemed to be a first member of the company and his membership is beyond revocation after the issue of certificate of registration.
A subscriber to memorandum of association is deemed to have agreed to become a shareholder, even if he submits no application and no allotment of shares is made to him. [Collector of Moradabad v Equity Insurance Co. Ltd. (1948) 18 Comp Cas 309 (Oudh)].

Provisions of section 12(1) of the Companies Act, 1956 are relevant in this situation, which provides that in order to form a public company limited by shares at least seven persons and in case of a private company limited by shares at least two persons have to subscribe their names to Memorandum of Association. Following conditions in that matter shall be ensured by the subscribers:—
(i) No subscriber of the Memorandum of a company having a share capital shall take less than one share, [Section 13(4)(b)] and
(ii) Each subscriber of the Memorandum shall write opposite to his name, the number of shares he takes. [Section 13(4)(c)]

Subscribers can be either literate or illiterate, man or woman, either resident or non-resident, either Indian national or foreign national, etc. A company being an artificial legal person can also be a subscriber. Even though the signature of a subscriber to memorandum of association of a company is not properly attested, once the memorandum has been registered, such subscriber cannot divest himself of his liability.

A subscriber to memorandum cannot, after issue of certificate of registration, repudiate his subscription on ground that he was induced to sign by misrepresentation of an agent of company. [Metal Constituents Ltd., In re (1902) 1 Ch. 707].

If subscribers to memorandum have any objection to memorandum and articles of association, the time to object is before putting their signatures to it. [East Bengal Sugar Mills Ltd., In re (1941) 11 Comp Cas 169 (Cal)].

Regards

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