Whether the section is applicable to subscriber to memorandum of association - Companies Law - No. 8(31)‑CL‑VI/62,

Circular : No. 8(31) ‑ CL ‑ VI/62, dated 12 ‑ 12 ‑ 1962. Subject:- Whether the section is applicable to subscriber to memorandum of association A question recently arose whether the provisions of section 372 would be applicable to the subscription to the memorandum of association of a new company by an existing company through its nominees. This question has been carefully examined in this Department and they have been advised that where subscribers to the memorandum of association of a new company are an existing public company and/or its nominees, such subscription amounts to the latter company subscribing for shares in the former, attracting thereby section 372. The position is further explained in the following paragraphs : In the case of a company with share capital, each subscriber to the memorandum shall write opposite to his name the number of shares, not being less than one he takes. As provided by section 41, the subscribers to the memorandum are deemed to have agreed to become members of the company and on its registration shall be entered as members in its register of members. Thus, the said subscribers automatically become members and holders of the shares for which they have subscribed. They have not to apply for shares and await the chances of allotment as in the case of other subscribers for the shares in the company. No allotment of shares is required in the case of subscribers to the memorandum. By subscribing to the memorandum of association of a company, the subscribers undertake to subscribe for the number of shares in that company written opposite to their names; and subscription has been held to mean taking or agreeing to take unissued shares for cash. In view of the legal position set out above, where company A and/or its nominees are the signatories to the memorandum of association of company B (to be formed) and the number of shares which company A either by itself or through its nominee undertakes to subscribe in company B exceeds the percentage limits specified in sub‑section (2) of section 372, the subscription of the said shares by company A would attract the provisions of sub‑section (4) of section 372 and company B can be registered only after the requirements of section 372(4 ) are complied with by company A . I am to add that for purposes of computing the limits of 25 per cent of the subscribed capital of company B , the total number of shares agreed to be taken up by all the signatories to the memorandum of association of company B should be taken as its subscribed capital .