Share application money
This query is : Resolved
07 January 2010
Dear Experts,
A pvt ltd co has received by cheque a sum of rs. 10 lacs towards share application money. It has not issued any shares. The amount received has been utilised in the subsidiary company located abroad.
1)Is there any time limit to issue shares?
2)Is there any violation in utilising the share application money?
A pvt ltd co has received by cheque a sum of rs. 10 lacs towards share application money. It has not issued any shares. The amount received has been utilised in the subsidiary company located abroad.
1)Is there any time limit to issue shares?
2)Is there any violation in utilising the share application money?
07 January 2010
As is evident that the 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.
Regarding time limit to convert such share application money into capital the law is silent. However as per practice allot share with 6 months of the receipt of application money.
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:
https://www.caclubindia.com/share_files/files_display.asp?files_id=11908
Regards
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.
Regarding time limit to convert such share application money into capital the law is silent. However as per practice allot share with 6 months of the receipt of application money.
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:
https://www.caclubindia.com/share_files/files_display.asp?files_id=11908
Regards
12 January 2010
Thank you Mr.Ankur Garg. But with respect to my second question, I would like to know whether the share application money can be utilised for business without alloting shares?
12 January 2010
Thank you Mr.Ankur Garg. But with respect to my second question, I would like to know whether the share application money can be utilised for business without alloting shares?
25 July 2025
Thanks for the follow-up! Here's a clear answer to your question about **using share application money (SAM) for business without allotting shares**:
---
### Can share application money be utilised for business before allotment of shares?
* **Technically, the share application money received is a liability of the company until shares are allotted.** It represents money received for which shares are yet to be issued.
* **Until shares are allotted:**
* The money belongs to the company, but it **cannot be treated as paid-up capital yet**.
* The company **should ideally keep this amount separate and not use it freely** like capital or business funds.
* **Using the money for business purposes before allotment:**
* **There is no express prohibition in the Companies Act, 2013 against utilising SAM before allotment**, but it is **not considered good corporate practice**.
* The **risk** is that if shares are not allotted within the prescribed time (60 days), the company **has to refund the amount with interest**, which means it must have sufficient liquidity.
* Using the amount in business, especially in a subsidiary abroad, could create a **cash flow problem if refund is required**.
* **If shares are not allotted within 60 days**, the money might be treated as a **deposit** under Sections 73 and 74 of the Companies Act, which attracts stricter compliance and penalties.
* **Legal and compliance risks:**
* If shares are not allotted timely and money is used elsewhere, the company **may face penalties** and issues with regulators.
* Also, this might raise questions during audits about misapplication of funds or non-compliance.
---
### **Summary:**
| Point | Explanation |
| ------------------------------------------------ | ------------------------------------------------------------------------------------------- |
| Use of SAM before allotment | No explicit prohibition, but not recommended; money is a liability until allotment happens. |
| Risk of using SAM for business without allotment | Potential cash flow and compliance risks if refund becomes necessary within 60 days. |
| Best practice | Keep SAM separate until shares are allotted or refunded within prescribed time limits. |
---
### **Recommendation:**
* Ideally, **allot shares within 60 days** of receipt.
* If allotment is delayed, avoid utilising SAM for any long-term or irreversible business activities.
* Keep funds readily available to refund if required.
* Consult a company secretary or legal expert to manage compliance.
---
If you want, I can help draft **best practice guidelines** for handling share application money or assist with compliance checklists. Would you like that?
---
### Can share application money be utilised for business before allotment of shares?
* **Technically, the share application money received is a liability of the company until shares are allotted.** It represents money received for which shares are yet to be issued.
* **Until shares are allotted:**
* The money belongs to the company, but it **cannot be treated as paid-up capital yet**.
* The company **should ideally keep this amount separate and not use it freely** like capital or business funds.
* **Using the money for business purposes before allotment:**
* **There is no express prohibition in the Companies Act, 2013 against utilising SAM before allotment**, but it is **not considered good corporate practice**.
* The **risk** is that if shares are not allotted within the prescribed time (60 days), the company **has to refund the amount with interest**, which means it must have sufficient liquidity.
* Using the amount in business, especially in a subsidiary abroad, could create a **cash flow problem if refund is required**.
* **If shares are not allotted within 60 days**, the money might be treated as a **deposit** under Sections 73 and 74 of the Companies Act, which attracts stricter compliance and penalties.
* **Legal and compliance risks:**
* If shares are not allotted timely and money is used elsewhere, the company **may face penalties** and issues with regulators.
* Also, this might raise questions during audits about misapplication of funds or non-compliance.
---
### **Summary:**
| Point | Explanation |
| ------------------------------------------------ | ------------------------------------------------------------------------------------------- |
| Use of SAM before allotment | No explicit prohibition, but not recommended; money is a liability until allotment happens. |
| Risk of using SAM for business without allotment | Potential cash flow and compliance risks if refund becomes necessary within 60 days. |
| Best practice | Keep SAM separate until shares are allotted or refunded within prescribed time limits. |
---
### **Recommendation:**
* Ideally, **allot shares within 60 days** of receipt.
* If allotment is delayed, avoid utilising SAM for any long-term or irreversible business activities.
* Keep funds readily available to refund if required.
* Consult a company secretary or legal expert to manage compliance.
---
If you want, I can help draft **best practice guidelines** for handling share application money or assist with compliance checklists. Would you like that?
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