A minimum subscription is the minimum number of shares to be sold by a company during its Initial Public Offering (IPO) to be termed successful. Typically, this would be 90% of the total shares offered. If the company fails to achieve the minimum subscription requirement, the IPO is called off, and the investors get their money back.
Benefits of Minimum Subscription
The minimum subscription requirement offers several advantages for both companies and investors:
- Adequate Capital: Ensures the company gets enough money to advance its plans.
- Investor Protection: If the IPO doesn’t reach its goal, investors get their money back, keeping them safe.
- Market Insight: The level of subscriptions shows how confident the market is. Failed IPOs can indicate a lack of confidence.
How Does Minimum Subscription Work?
A minimum subscription ensures that a company raises enough capital for its initial public offering (IPO) to proceed. Here’s how it works:
- Set Subscription Threshold: Companies define a minimum number of shares they must sell for the IPO to be considered successful.
- Investors Apply for Shares: During the subscription period, investors apply to buy shares the company offers.
- Subscription Verification: Once the subscription period ends, the company calculates the total number of shares subscribed.
- Cancellation on Failure: If the total subscription doesn’t meet the minimum required, the IPO is cancelled, and investors receive a refund.
- Investor Protection: This system safeguards investors by ensuring they don’t invest in companies that won’t have enough capital to operate effectively.
Conclusion
The minimum subscription rule ensures that the company’s IPO would work and be able to stand on its own. It protects investors, ensures enough money is raised, and shows how confident the market is. That’s quite an important aspect of the IPO process.