Question

Minimum subscription is the minimum amount that, in the opinion of directors, must be raised to meet the needs of business operations of the company relating to: A. the price of any property purchased, or to be purchased, which has to be met wholly or partly out of the proceeds of issue;
B. preliminary expenses payable by the company and any commission payable in connection with the issue of shares
C. working capital;
D. any other expenditure required for the usual conduct of business operations Choose the correct answer from the options given below:

• A. (A), (B) and (D)
• B. (A), (B) and (C)
• C. (A), (B), (C) and (D)
• D. (B), (C) and (D)

Hint:

To remember this concept, think of "Minimum Subscription" as the Survival Fund. A company isn't allowed to start its journey if it hasn't collected enough money to pay for its "house" (Property), its "setup fees" (Preliminary expenses), and its "monthly bills" (Working capital).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Minimum subscription is a statutory requirement designed to prevent companies from starting business with inadequate capital. The directors must estimate the minimum funds required to cover startup and initial operational costs.
Step 2: Detailed Explanation:
The funds raised through a public issue of shares must be enough to satisfy several fundamental business needs:
1. Asset Acquisition (A): Buying land, buildings, or machinery needed for production.
2. Issue Costs (B): Covering formation costs like preliminary expenses, underwriting commissions, and brokerage fees.
3. Working Capital (C): Providing liquidity for day-to-day operations like raw material purchase and wages.
4. General Expenditures (D): Any other costs necessary for the usual conduct of business operations.
Since all these points represent basic financial requirements to start a viable business, the minimum subscription must cover all of them collectively.
Step 3: Final Answer:
All the items listed (A, B, C, and D) are valid components that the directors consider when determining the minimum subscription amount.
Therefore, the correct option is (a).