Entry for allocation of share capital

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)
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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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