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Initial subscription in cash

Sujith N (Student) (42 Points)

13 October 2016

Can initial subscripttion of a pvt co. be bought in cash? If no, which section mandates the receipt through bank account?

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11 Replies

Saket Agarwal (Chartered Accountant) (274 Points)
Replied 14 October 2016

Since there is no specific provision mandating the initial subscripttion to be in cash, the same can be brought in cash as well.

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Saket Agarwal (Chartered Accountant) (274 Points)
Replied 14 October 2016

Since there is no specific provision mandating the initial subscriptttion to be in cash, the same can be brought in cash as well.

Saket Agarwal (Chartered Accountant) (274 Points)
Replied 14 October 2016

Since there is no specific provision mandating the initial subscripttion to *not* be in cash, the same can be brought in cash as well.

Kumar Purohit (Articled Assistant) (653 Points)
Replied 14 October 2016

I have something different answer

A private company may issue securities—

(a) by way of rights issue or bonus issue in accordance with the provisions of this act,

(b) through private placement by complying with the provisions of Part II of this Chapter.

as per section 42(5) All monies payable towards subscripttion of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.

Hence in my opinion it cannot be in cash

Thanks

with best regards

Saket Agarwal (Chartered Accountant) (274 Points)
Replied 14 October 2016

Dear Kumar Prohit,

Section 42 is applicable only in case of Private Placement. No doubt in case of Private Placement, because of Section 42(5), the amount can not be received in Cash.

However, the question is whether "Initial Subscripttion" can be via cash. Section 42 does not apply to subscripttion to shares at the time of Incorporation. As far as I know, there is no restriction for the form of capital contribution at the time of Incorporation.

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Sujith N (Student) (42 Points)
Replied 14 October 2016

Sec 42 requires the amount to be brought through bank channels only. But what can be the logic if initial subscripttion can be bought in cash? Then, can that be a way on making the black into white? Y it s mandatory to bring through bank channels?

Sujith N (Student) (42 Points)
Replied 14 October 2016

Thnku sir.

Sujith N (Student) (42 Points)
Replied 14 October 2016

Thnku sir.

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 15 October 2016

I agree with Saket. No provisions which mandates to bring subbscribers money through Bank.

Kumar Purohit (Articled Assistant) (653 Points)
Replied 15 October 2016

yes

Initial Subscripttion is different from the Private Placement as the latter is done after the company has been incorporated and the former is a part of the process of incorporation. Thus, Section 42 (5) is not applicable in case of Initial Subscripttion. However, we do not advise our clients to bring in subscripttion money in cash. In the absence of any specific provisions, we do refer to other section guidance.

Thanks

With Best Regards