Question

Explain the term ‘Under-subscription’.

Answer 1

Under-subscription is a financial situation in which a company receives fewer applications for shares than it has offered to the public for sale. This scenario occurs during a public issue or an IPO when market demand is lower than the available supply, typically due to weak market conditions or low investor confidence. For example, if a company invites applications for 1,0,000 shares but receives requests for only 80,000 shares, the issue is under-subscribed by 20,000 shares. According to corporate law, a company must achieve a minimum subscription (usually 90% of the issued amount) to proceed with allotment; otherwise, the entire issue is cancelled, and all money must be returned to investors.