Understanding Share Application Money and Face Value

When a company wants to raise money from the public, it issues shares. People interested in buying these shares need to apply for them. Along with the application, they usually need to pay a certain amount of money upfront. This initial payment is known as application money.

The total value of a share is typically collected in installments: application, allotment, and call money (first call, second call, etc.). The face value, also known as par value or nominal value, is the value of a share as stated in the company's memorandum of association. It's a fixed value per share and is often a small amount like &\#x20B9;1, &\#x20B9;10, or &\#x20B9;100.

Minimum Application Money Requirement

Regulations specify a minimum amount that must be collected as application money to ensure that only serious applicants apply and that the company receives a substantial amount upfront for its initial expenses related to the share issue. This minimum is often set as a percentage of the face value of the share.

Based on the requirement mentioned in the question, the application money should be at least a certain percentage of the face value of the share. This minimum percentage is important for the company to proceed with the share allotment process.

Calculating Minimum Application Money

If the minimum application money required is a percentage of the face value, the calculation is straightforward:

\(\text{Minimum Application Money} = \text{Minimum Percentage} \times \text{Face Value}\)

For example, if the face value of a share is &\#x20B9;10 and the minimum application money is required to be 55% of the face value, the minimum amount to be paid with the application would be:

\(\text{Minimum Application Money} = 55\% \times \&\#x20B9;10\)

\(\text{Minimum Application Money} = \frac{55}{100} \times \&\#x20B9;10\)

\(\text{Minimum Application Money} = 0.55 \times \&\#x20B9;10\)

\(\text{Minimum Application Money} = \&\#x20B9;5.50\)

This means that for a share with a &\#x20B9;10 face value, an applicant must pay at least &\#x20B9;5.50 when submitting their application.

Analyzing the Options

The question asks for the minimum percentage of the face value that should be collected as application money.

• Option 1: 10\%
• Option 2: 15\%
• Option 3: 55\%
• Option 4: 20\%

According to the information provided, the application money should be at least 55\% of the face value of the share.

Conclusion on Minimum Share Application Money

Based on the requirement specified, the application money for shares must be at least 55\% of the face value of the share. This ensures a significant initial contribution from applicants towards the share's value.

Revision Table: Key Terms for Share Issue

Additional Information on Share Application Rules

Understanding the different components of the share price and the stages of collection is crucial in company accounting and finance. The rules regarding minimum application money are designed to protect both the company and the investors. A reasonable minimum ensures that the company has sufficient funds to cover the expenses of the issue and that applicants are genuinely interested.

Regulations governing the minimum application money can vary depending on the country and the type of security being issued (e.g., public issue vs. private placement). It's important to refer to the specific rules applicable at the time of the issue, such as those laid down by regulatory bodies like SEBI (Securities and Exchange Board of India) in India or relevant company laws.

The minimum percentage linked to face value sets a baseline, but companies often collect more, especially if the shares are issued at a premium (issue price > face value). In such cases, application money is often a significant portion of the issue price, not just the face value.