Question

Explain the term ‘Over-subscription’.

Answer 1

Over-subscription is a financial situation that occurs when a company receives applications for more shares than it has actually offered to the public for sale. This scenario happens during a public issue or an IPO when market demand vastly exceeds the available supply. It is a highly positive signal reflecting strong investor confidence, healthy goodwill, and a high market reputation for the company. For example, if a company invites applications for 1,00,000 shares but receives requests for 1,50,000 shares, the issue is over-subscribed by 50,000 shares. Since a company cannot legally allot more shares than originally offered in its prospectus, the Board of Directors must resolve this surplus through methods such as pro rata allotment or the rejection of excess applications.