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Application Money

Ashish Sharma (Service) (1028 Points)

16 March 2010

Hi,

Is application money received can be used without allotting shares? is in a private company and in Public Limited not listed application money need to be deposit in any account?

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5 Replies

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 March 2010

Hello Ashish,

In case your company has accepted the Share Application Money you may do one simple thing. You may record the above transaction i.e. receipt of share application money and assurance given to proposed allottee in the board meeting minutes.

In other words simple noting of such receipt in the board minutes would be enough. No need to take any kind of approval from any concerned authorities.

Further collect the share application form from the proposed allottee for your record. You may download the sample share application from the link mentioned below:

/share_files/files_display.asp?files_id=11908

Regards

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 March 2010

On the practical front this money is very much available to the company as nobody can trace this money. Reason being there is no such requirement to open some escrow account for the same application money.

Practically use of this money depends on the terms of subscripttion agreement between the prospective investor and issuer company.

Regarding time limit to convert such share application money into capital the law is silent. However as per practice (specifically mention/mandatory requirement in FEMA regarding foreign money) allot share with 6 months of the receipt of application money.

Further there is no need to maintain share application money in a separate account.

Regards

CS Jithesh (ACS,) (COMPANY SECRETARY ) (485 Points)
Replied 10 April 2010

I would like to ask the below query to my respected member

Suppose a company is having unsecured loans from its directors and they wants to show it as Share application money, and the Companies Act is silent abount the disbursement of Such SHareapplication money, On this context is there any violation if we have not refund the same with in 1 or 2 years. This is a family company and all shareholders are directors and they have given their consent to keep the money in company. We have shown the unsecured loans as Share application money to meet various covenants with various banks.

Kindly advise me is there any unlawfull or non compliance of any provisions of Companies Act