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Capital Subscription

A public company is allowed to raise their funds from the public by issuing shares and debentures. But before that it has to issue a prospectus for the public to subscribe to the capital of the company and undergo various other formalities. The steps required for raising the money from the public are:
  1. SEBI Approval: The Securities and Exchange Board of India which is our country's regulatory authority has published guidelines for the disclosure of information and investor protection. A company which has invited for funds from the general public must make sufficient disclosure of all relevant information and must not conceal any material information. This is needed for the protection of the investors.​
Difference between Memorandum of Association and Articles of Association

Basis of Difference

Memorandum of Association

Articles of Association


Memorandum of Association defines the objects for which the company is formed

Articles of Association are rules of internal management of the company. They indicate how the objectives of the company are to be achieved.


This is the main document of the company and is subordinate to the Companies Act.

This is a subsidiary document and is subordinate to both the Memorandum of Association and the Companies Act.


Memorandum of Association defines the relationship of the company with outsiders.

Articles define the relationship of the members and the company


Acts beyond the Memorandum of Association are invalid and cannot be ratified even by a unanimous vote of the members.

Acts which are beyond Articles can be ratified by the members, provided they do not violate the Memorandum.


Every company has to file a Memorandum of Association.

It is not compulsory for a public ltd. company to file Articles of Association. It may adopt Table A of the Companies Act


Alteration of Memorandum of Association is quite difficult and in many cases, approval of certain statutory authority is required.

Articles can be altered by passing a special resolution by the members.


Hence before raising funds from the public we need get the approval from SEBI.
  1. Filing of Prospectus: A copy of the prospectus or statement in lieu of prospectus has to be filed with the Registrar of Companies. A prospectus is 'any document described or issued as a prospectus including any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares or debentures of, a body corporate'. so it can be said that it is an invitation to the public to apply for shares or debentures of the company or to make deposits in the company. Investors set their minds about investment in a company solely on the basis of the information present in this document. Hence, there is not suppose to be a mis-statement in the prospectus and all important information must be fully disclosed.
  2. Appointment of Bankers, Brokers, Underwriters: Raising funds from the public is a very difficult task. The bankers of the company should receive the application money. The brokers distribute the shares to the public and encourage them to buy them. If the company is doubtful of a good public response then it may also appoint underwriters to the issue. Underwriters buy these shares if they are not bought buy the public by receiving a commission for underwriting of this issue.
  3. Minimum Subscription: For the companies to commence business with adequate resources, it has been presented that the company must receive applications for a certain minimum number of shares before going ahead with the allotment of shares. According to the Companies Act, it is known as the 'minimum subscription'. If applications received for the shares are for an amount less than 90 per cent of the issue size, the allotment is not allowed to be made and the application money received is suppose to be returned to the applicants.
  4. Application to Stock Exchange: Atleast one stock exchange is sent an application for the permission to deal its shares and debentures. The allotment shall become void and all money received from the applicants will have to be returned to them within eight days is such permission is not allotted within 10 weeks of the closure of the subscription .
  5. Allotment of Shares: If the number of shares allotted becomes less than the number applied for, or where no shares are allotted to the applicant, the excess application money, if any, has to be returned to applicants or adjusted towards allotment money due from them. A Return of allotment, within 30 days, signed by the director or secretary is suppose to be submitted. The public may not be invited to allot the shares and debentures by a public company but it can raise funds through friends, relatives or some private arrangements as done by a private company.
Provisional Contract

These are contracts which are signed after incorporation but before the commencement of business. These become enforceable only after the company gets the Certificate of Commencement of Business.


Hence there is no need to issue a prospectus and a 'Statement in Lieu of Prospectus' is filed with the Registrar at least 3 days before making the allotment.

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