There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): Shares cannot be allotted unless it receives a minimum subscription.
Reason (R): SEBI has prescribed that a company issuing shares to the public cannot allot shares unless it receives a subscription of 90% of the shares issued.
Answer & explanation
Correct answer: option 1
If minimum subscription has been received, the company may proceed for the allotment of shares after fulfilling certain other legal formalities. Letters of allotment are sent to those whom the shares have been alloted, and letters of regret to those to whom no allotment has been made. When allotment is made, it results in a valid contract between the company and the applicants who now became the shareholders of the company.It is to be noted that ‘minimum subscription’ of capital cannot be less than 90% of the issued amount according to SEBI (Disclosure and Investor Protection) Guidelines, 2000 [6.3.8.1 and 6.3.8.2]. If this condition is not satisfied, the company shall forthwith refund the entire subscription amount received. If a delay occurs beyond 8 days from the date of closure of subscription list, the company shall be liable to pay the amount with interest at the rate of 15% [Section 73(2)].