The Minimum Subscription is a critical concept under the Companies Act, 2013 and SEBI regulations, governing the process of raising capital through an Initial Public Offering (IPO).
It ensures that a company raises a minimum level of funds necessary to carry out its proposed business objectives and maintain regulatory compliance. By setting this threshold, the law safeguards investors’ interests and reflects the market’s confidence in the company’s offering.
If the required minimum subscription is not met, the company must refund investors’ money within a stipulated period- ensuring transparency, fairness, and accountability in the capital-raising process.
In this blog, we’ll break down everything you need to know about Minimum Subscription- its meaning, benefits, refund rules, filing requirements, and how it safeguards both investors and companies during an IPO.
Table of Contents
What Does Minimum Subscription Mean?
Under the Companies Act, 2013, the term minimum subscription refers to the minimum amount that must be raised by a company issuing shares to proceed with an IPO.
As per Section 39(1) of the Act and SEBI (ICDR) Regulations, a company must receive at least 90% of the total issue size through valid applications to consider the public issue successful.
If the 90% subscription threshold is not achieved:
- The company must refund the entire application money to investors within 15 days from the date of issue closure.
- Failing to do so attracts interest at 15% per annum on the delayed refund amount.
Exceptions:
Certain infrastructure companies or those with alternative funding arrangements may be exempt from this rule, provided they disclose such arrangements in their prospectus.
Benefits of the Minimum Subscription Requirement
The minimum subscription requirement plays a crucial role in maintaining a healthy and transparent capital market. Its benefits include:
- Investor Protection:
Ensures that if the company fails to raise 90% of the funds, investors’ money is refunded promptly- preventing financial loss. - Capital Adequacy:
Guarantees that the company has sufficient capital to execute its proposed business plans and avoid undercapitalisation. - Market Sentiment Indicator:
The subscription level reflects investor trust and market perception of the company’s potential. - Regulatory Compliance:
Enforces SEBI and MCA norms, promoting corporate governance and adherence to financial disclosure standards. - Transparency and Risk Mitigation:
Reduces the risk of failed IPOs and fosters transparency by ensuring companies don’t proceed without adequate funding.
Acceptance of Application Deposit for Minimum Subscription
When inviting the public to subscribe for shares, companies must follow strict rules for application deposits under the Companies Act, 2013:
- Each investor must pay at least 5% of the nominal value of the shares applied for.
- Payments can only be made via cheque or demand draft — cash payments are not allowed.
- All application money must be kept in a separate bank account and cannot be used for:
- Working capital needs
- Loan repayments or short-term debts
- Funds can be used only for purposes stated in the prospectus.
The 90% minimum subscription ceiling applies even after excluding:
- Applications where cheques bounce
- Defaulting or invalid subscribers
If a company mentions a lower minimum subscription than 90% in its prospectus, it is considered invalid. However, if it sets a higher ceiling, the company must meet that higher percentage to proceed.
Refund of Application Deposit for Minimum Subscription
If a company fails to achieve the 90% minimum subscription, it must refund the entire application money within 15 days of the issue’s closure date.
If the refund is delayed:
- The company is liable to pay 15% annual interest on the delayed amount.
- Directors are personally liable for ensuring refunds are made promptly.
Filing Requirements of Minimum Subscription
Once the minimum subscription is achieved and shares are allotted, the company must fulfil statutory filing obligations with the Registrar of Companies (RoC). The company must file Form PAS-3 (Return of Allotment) within 30 days of share allotment.
Key filing requirements:
- The filing must be authorised by a Board Resolution.
- The form must be digitally signed by a Chartered Accountant or Company Secretary.
- Filing fees depend on the company’s authorised share capital.
Mandatory attachments include:
- List of allottees with details of shares allotted
- Contracts for non-cash consideration (if any)
- Valuer’s Report, if applicable
- Board Resolution approving the allotment
How to Calculate Minimum Subscription?
The minimum subscription is calculated as 90% of the total shares offered in the IPO.
Minimum Subscription = 90% x Total Shares Offered
While calculating, companies should exclude:
- Rejected applications
- Withdrawn or invalid applications
If the valid applications are less than 90%, the company must refund the entire amount within 15 days.
Key Insights About Minimum Subscription
- Minimum subscription for an IPO is 90% of the issue size.
- Refunds must be made within 15 days if the threshold is not met.
- Infrastructure companies may get exemptions under certain conditions.
- Delays attract 15% annual interest and personal liability for directors.
- Filing through Form PAS-3 within 30 days ensures compliance with the RoC.
- The rule safeguards investors, enforces SEBI and MCA regulations, and maintains market confidence and credibility.
Frequently Asked Questions (FAQs)
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
Frequently Asked Questions
What happens if an IPO does not meet the minimum subscription requirement?
If an IPO fails to receive at least 90% of the total issue size (the minimum subscription), the company cannot proceed with the allotment of shares. In such cases, the company must:
- Refund all application money to investors within 15 days of the issue’s closure date.
- If the refund is delayed, the company is liable to pay interest at 15% per annum for the delay.
- Directors can be held personally liable for ensuring that refunds are made on time.
How does minimum subscription affect retail investors?
The minimum subscription requirement is a major investor protection mechanism, especially for retail investors. Here’s how it helps:
- Guarantees Refunds: If the IPO fails to reach 90% subscription, retail investors get their money refunded in full.
- Prevents Underfunded Companies: It ensures only companies with adequate investor confidence and capital proceed with the IPO.
- Builds Market Confidence: Retail investors can participate knowing that regulatory safeguards protect their investment.
- Fair Treatment: The refund rule applies uniformly to all categories of investors — retail, institutional, and non-institutional.
What is the time limit for collecting the minimum subscription?
The time limit for collecting the minimum subscription is 120 days from the date of the issue of the prospectus, as per Section 39(3) of the Companies Act, 2013.
However, in practice and as per SEBI (ICDR) Regulations, companies generally set the IPO subscription period between 3 and 10 working days.
How can investors assess the likelihood of an IPO meeting its minimum subscription?
Investors can evaluate the likelihood of an IPO achieving its minimum subscription by monitoring several indicators:
- Subscription Data: Check daily subscription figures on stock exchange websites (NSE/BSE).
- Company Fundamentals: Strong financials, growth potential, and credible promoters usually attract more investors, improving the chance of full subscription.
- Market Sentiment: In bullish markets, IPOs tend to get oversubscribed quickly; weak market conditions may slow down subscriptions.
- Pricing and Valuation: Overpriced IPOs often struggle to reach a 90% success rate, while fairly valued or discounted issues attract more demand.
- Anchor Investor Participation: High anchor investor interest before the issue opens signals confidence and boosts subscription levels.
What are the penalties for non-compliance with minimum subscription requirements?
Non-compliance with the minimum subscription rules can result in severe penalties under the Companies Act, 2013, and SEBI regulations. The company must pay interest at 15% per annum to investors for the delay.
Failure to refund or comply:
The company and its officers (including directors) may face:
- A fine of ₹1,000 per day of default (up to ₹1,00,000).
- Possible prosecution or penalties imposed by SEBI.
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Swagatika Mohapatra is a storyteller & content strategist. She currently leads content and community at Razorpay Rize, a founder-first initiative that supports early-stage & growth-stage startups in India across tech, D2C, and global export categories.
Over the last 4+ years, she’s built a stronghold in content strategy, UX writing, and startup storytelling. At Rize, she’s the mind behind everything from founder playbooks and company registration explainers to deep-dive blogs on brand-building, metrics, and product-market fit.
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