PDSnet Glossary

Term

Categories

Introductory Technical Fundamental Economics Opinion Sectors International Regulatory Other Markets

Versions

Name	synonyms = 1, variations = 2, abbreviations = 3

Publish: (0 = no, 1 = yes)

Definition

Section 108 (2) of the Companies Act requires the directors of a company intent on raising capital from the public by a sale of shares to determine the minimum amount of capital necessary for a company to become viable. This is called the minimum subscription. The Act provides that no shares shall be allotted on any application made in pursuance of a prospectus for subscription unless the amount stated in that prospectus as the minimum amount is raised. This in effect means that if the minimum subscription is not achieved the sale of shares is cancelled and all applicants must have the money returned. Of course, the directors have almost complete discretion over exactly how much this amount is. Many companies pay an underwriter to ensure that the minimum subscription is taken up. For example, in April 2018, Sagarmatha (SGT) was intent on listing on the JSE and the directors decided to set the minimum subscription at R3 billion. This enormous amount was to be raised through a private placing before the listing and an initial public offer. The company stated that it had commitments from private investors who wanted to buy about R4bn worth of shares and so the minimum subscription was achieved. The 1,2 billion shares issued were valued at just under R40 each, giving the company a theoretical value of just less than R50bn.

Edit Glossary Term