Difference between Oversubscription and Undersubscription of Shares
The company offers shares for sale to the general public in order for them to become public owners. There are two circumstances pertaining to the matter of shares, namely:
- Excessive allocation of shares beyond the available supply.
- Regarding the acquisition of shares through a subscription.
Oversubscription occurs when a company receives a greater number of applications from potential shareholders than the quantity of shares that are offered for public purchase.
Undersubscription refers to a scenario when the number of shares applied for by the public is lower than the number of shares issued by the corporation.
New or newly-established companies with a poor reputation will encounter a situation where there is insufficient demand for their products or services.
Here are some key distinctions between the oversubscription and undersubscription of shares:
Difference Between is as Follow:
Basis | Oversubscription of Shares | Undersubscription of Shares |
Meaning | When the application received for shares exceeds the actual shares offered. | When the actual shares offered exceed the application received for shares. |
Impacts | High demand leads to:
| Low demand leads to:
|
Customer Experience | Potential buyers have to wait for the allotment of shares and may face the decline of applications or pro-rata allotment. | If the company does not receive at least 90% of the amount which they intend to sell, the whole issuing drive got cancelled. |
Refunds | Refunds are being made for excess applications received. | Refund situations arise in the case when the company does not receive at least 90% of the amount it wishes to sell. |
Minimum subscription | No questions of minimum subscription arise in this case. | Company sets a bar for minimum subscriptions to be made under such conditions. |
Investors’ Mindset | Investors have a positive image of the company in mind, hence over subscription arises. | Under subscription arises due to a negative image in the mind of investors regarding the company. |
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