Audit qualification

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Anil (Querist)
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17 July 2014
A private company has been formed. Two people have signed the MOA saying they will subscribe to Rs.1 Lac worth of shares. But they have put in only Rs.50,000 together in the company. A third person who is not subscribed to MOA has invested 50,000. More than a year has passed since incorporation and no return of allotment is filed with ROC. In this regard I have following questions:

Queries:

1) Should the auditor treat Rs.1,00,000 received as loan since no return of allotment has been filed with ROC?

2) If the answer is yes, then it would result in no paid up share capital in the B/S. In this case should the Auditor qualify his report? If yes , what should be the wordings for qualification?

Please answer above questions separately for each question.

Thanks

Ankur Garg

Ankur Garg (Expert)
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17 July 2014 Hi,

Subscribers of MOA are deemed shareholders of the company. They don't need to take shares. As soon as they subscribe the MOA & file it with ROC along with other incorporation documents they become the members as well as shareholders of the company. Appreciate further have you ever filed form-2 for the subscribers? The answer would be No. That itself is a kind of proof that no allotment is required to be made to the subscribers.

Form-2 (Now PAS-3) is not required to be filed for subscribers hence no formal allotment is required in case of subscribers. They are deemed members and shareholders of the Company.

Regarding receipt of payment from subscribers I would say ideally such amount should be deposited by the subscribers after incorporation of the co. in the newly opened bank a/c of the company and record the same in the first BM Minutes.

Alternatively, as there is no tracing (as far as ROC is concerned) of such amount, it may be deposited by them later to avoid Auditor query. As a CS I would suggested you should opt I option to avoid any kind of future problem.

DATE OF ALLOTMENT TO SUBSCRIBERS AND DATE TO BE MENTIONED ON SHARE CERTIFICATE

Date of allotment to subscribers will be the date of incorporation of the company and the same date will also be used for printing on share certificate to be issued to subscribers.

Practically & legally this is very much possible. To conclude you may use Date of Incorporation of the company for the purpose of:
1. Printing on share certificate of subscribers
2. as date of Allotment to subscribers
3. For the purpose of filling the column in register of member to enter the name of subscribers.

Even if you receive the amount from subscribers after 6 months the date of deemed Allotment and date on share certificate would remain the same i.e. date of incorporation of the company.

In your case Rs. 50,000/- received from a third person in bank account of the company,this is indeed a matter of concern from Auditor’s point of view. It is advisable to file allotment form without delay.

Best Regards

Message likes : 1 times

Anil

Anil (Querist)
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17 July 2014 Thank you so much sir. Your reply is crystal clear and precise. I have few more questions to ask on the same topic

1) For 50000 received from subscribers can I show the entry

Bank....Dr.- 50,000
Share Application money Dr.- 50000

Share Capital..Cr -100000

In this regard I would also like to know how long share application money can be shown as receivable under the Act? and should the share application money recivalbe always be maximum of 10% of total paid up capital

2) Regarding the third person investing 50000 can I show it as loan now. File allotment return with ROC and then convert the loan to share capital in books of accounts?

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