Direct answer
Rule 13 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 requires articles authorisation for subscription-related commission. The share cap is 5% of issue price or the articles rate, whichever is lower; for debentures it is 2.5% or the articles rate, whichever is lower. A ceiling is not a promise to pay the ceiling. First establish that the payment and offer satisfy the rule, then apply the contractual amount within the permitted limit. ICSI statutory e-book: Companies (Prospectus and Allotment of Securities) Rules, 2014, rule 13.
Use the whole rule, not only its percentages
The ICSI statutory e-book reproduction was opened and checked on 27 October 2026. Rule 13 permits payment from issue proceeds, profits or both, requires specified prospectus disclosures and delivery of the commission contract to the Registrar with the prospectus for registration. It prohibits commission to an underwriter on securities not offered to the public for subscription. Treat public-offer eligibility and any other applicable securities regulation as independent controls; a percentage calculation cannot authorise an otherwise prohibited payment.
Define the relevant issue-price base
Map the agreement to the securities and quantity it covers. Issue price is not necessarily face value: an issue at a premium requires the correct price per security in the calculation. Separate share and debenture tranches because their statutory rates differ. Where the agreement covers only part of an issue, establish the correct covered quantity instead of multiplying the percentage by the entire financing programme.
Read articles and contract together
Keep the operative articles version, approval record and commission contract in one file. An articles limit below the statutory ceiling controls the maximum in the worked models. A higher articles percentage cannot override the statutory ceiling. A lower contracted rate generally leaves the contractual amount below the legal maximum; no upward adjustment to the maximum should be made merely because funds are available.
Connect calculation and disclosures
Reconcile the underwriter’s identity, rate, amount and number of securities underwritten or subscribed absolutely or conditionally to the prospectus information. A supporting spreadsheet should show unit price, covered quantity, issue value, each competing rate and the amount proposed. Keep tax invoices, withholding and GST analysis separate; the numerical models concern commission before any such additional statutory treatment.
Common errors and model limits
Do not infer authorisation from an accounts description such as fundraising expense. Do not apply the share percentage to debentures, use nominal value instead of issue price, or assume that a private issue becomes eligible because its commission is small. The models assume the public-offer and authorisation conditions are met except where expressly tested. They do not determine SEBI permissions, offer validity, accounting capitalisation or tax deductibility.
Applicable primary references
ICSI statutory e-book: Companies (Prospectus and Allotment of Securities) Rules, 2014, rule 13
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Articles rate below the share ceiling
An eligible public share offer includes 1,00,000 covered shares at issue price ₹120, including premium. Covered issue value is ₹1,20,00,000. Articles permit 3% and the contract proposes 3%. The lower of 5% and 3% is 3%, giving ₹3,60,000. Using ₹10 face value instead would misstate the base.
Illustrative example 2: Articles cannot raise the statutory share maximum
The covered share issue value is ₹2,00,00,000 and the articles state 6%. The statutory ceiling still limits the model to 5%, or ₹10,00,000. A proposed 6% payment of ₹12,00,000 exceeds that ceiling by ₹2,00,000. All other eligibility conditions remain independently necessary.
Illustrative example 3: Debenture limit is different
An eligible covered public debenture tranche is ₹4,00,00,000. Articles permit 2% and the proposed contract uses that rate. Lower of 2.5% and 2% is 2%, giving ₹8,00,000. Applying the share ceiling would not be an acceptable substitute for this debenture calculation.
Illustrative example 4: Contract below the permitted cap
The covered share issue value is ₹80,00,000, articles permit 4%, and the contract specifies 2%. The legal rate ceiling gives ₹3,20,000, but the contract calculation is ₹1,60,000. The ₹1,60,000 difference is unused legal headroom, not an additional amount automatically payable.
Illustrative example 5: Separate security classes in a combined offer
Assume eligible covered shares of ₹1,50,00,000 with an articles limit of 4%, and eligible debentures of ₹2,00,00,000 with an articles limit of 3%. Maximum share commission is ₹6,00,000; maximum debenture commission uses 2.5%, or ₹5,00,000. Combined maximum is ₹11,00,000, before applying any lower contractual amounts. One blended percentage would hide the separate ceilings.
Illustrative example 6: Only the identified covered quantity enters the model
A share offer has 2,00,000 shares at ₹50, but the assessed agreement covers only 60,000 of them. Assume the contractual and permitted rate is 3%. Covered value is ₹30,00,000 and commission ₹90,000. Applying 3% to the entire ₹1,00,00,000 offer gives ₹3,00,000, overstating this agreement’s amount by ₹2,10,000. Confirm actual coverage from the executed documents.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the payment and securities | Subscription/procurement purpose and instrument classification. |
| 2 | Check the offer route | Public-offer restriction and other applicable securities requirements. |
| 3 | Verify articles authorisation | Operative articles and authorised rate. |
| 4 | Read the executed commission contract | Covered securities, quantity, price and contractual rate. |
| 5 | Construct the issue-price base | Unit issue price multiplied by covered quantity. |
| 6 | Apply the correct statutory ceiling | Separate share and debenture rate workings. |
| 7 | Compare the articles limit | Lower-rate calculation and proposed-amount review. |
| 8 | Reconcile prospectus information | Underwriter names, rates, amounts and covered securities. |
| 9 | Check Registrar delivery evidence | Commission contract delivery with prospectus registration materials. |
| 10 | Approve the final payment bridge | Contract, legal maximum, payment source and separate tax/accounting review. |
Sixteen practitioner FAQs
1. Is 5% the compulsory share commission?
It is a statutory ceiling, further limited by articles and the actual agreement.
2. What is the debenture percentage?
The rule states 2.5%, subject to the lower articles rate and other conditions.
3. Can articles permit a higher statutory payment?
A higher articles percentage does not override the relevant statutory ceiling.
4. What if the articles rate is lower?
Use that lower ceiling in the calculation and separately apply the contract.
5. Is face value always the base?
The rule refers to issue price. Confirm the actual price, including a relevant premium, rather than assuming nominal value.
6. Must the entire issue enter every contract calculation?
Determine the agreement’s actual coverage. The sixth example isolates a covered portion.
7. Can the share rate be applied to debentures?
Keep the security classes separate because the specified statutory rates differ.
8. Does a cap calculation establish permission for a private issue?
No. The rule expressly prohibits the specified underwriter commission on securities not offered to the public.
9. Is payment from profits prohibited?
Rule 13 allows issue proceeds, profits or both, subject to its conditions.
10. Which prospectus details need reconciliation?
The underwriter’s name, commission rate and amount, and the specified number of securities underwritten or subscribed.
11. Does the commission contract need a filing check?
Rule 13 requires its delivery to the Registrar with the prospectus for registration. Retain evidence of the relevant delivery.
12. What if the contract rate is below the cap?
Do not increase the contractual amount to consume legal headroom automatically.
13. Does an accounting entry prove articles authority?
Review the governing articles and approvals; a ledger description is not equivalent evidence.
14. Are GST and withholding included in these examples?
No. The examples isolate commission and leave those statutory treatments to separate analysis.
15. Does this settle accounting treatment of issue costs?
No. Accounting recognition and presentation require their own applicable-framework review.
16. What should a payment reviewer sign off?
Eligibility, articles authority, agreement coverage, correct base, lower ceiling and disclosure/delivery evidence.
Conclusion
Calculate securities subscription commission using issue price and the lower articles limit, then verify public-offer restrictions and prospectus evidence.