## Payment of Commission [Section 40(6)]

A company may pay commission to any person for subscribing or procuring subscriptions to its securities, only if authorised by the AOA.

> No commission shall be paid to an underwriter for securities not offered to the public.

### Rules at a glance

Item	Rule
Source of payment	Proceeds of issue, or profits of the company, or both.
Maximum rate — Shares	Lower of 5% of issue price or rate authorised by AOA.
Maximum rate — Debentures	Lower of 2.5% of issue price or rate authorised by AOA.
Mode of payment	No prohibition — can be in cash or kind.
Prospectus disclosure	Names of underwriters, number of securities to be underwritten, rate and amount of commission.
Filing with ROC	Copy of the contract for payment of commission delivered to ROC at the time of delivery of the prospectus.
Default punishment	Same as Section 40 — company ₹5L–₹50L; officer in default ₹50,000–₹3L.

Worked example

### Example 1

Q. N Ltd.'s AOA authorises commission up to 4% on shares. It issues equity at ₹100 and proposes to pay 5% commission to its underwriter. Permissible?

A. No. Section 40(6) caps commission at the lower of 5% of issue price or the AOA rate. Since the AOA permits only 4%, the company can pay at most 4%. Paying 5% is in default.

### Example 2

Q. N Ltd. wants to pay underwriting commission on a private placement of shares to 50 selected investors. Allowed?

A. No. Commission cannot be paid to an underwriter for securities not offered to the public.

⚠️ Common exam mistakes

Applying 5% to debentures — the cap for debentures is 2.5%.
Taking the higher of statutory cap and AOA rate — it is always the lower.
Paying underwriting commission on a non-public issue.

Bare-Act text Section 40(6) · Companies Act, 2013 · click to expand

A company may pay commission to any person in connection with the subscription to its securities, subject to such conditions as may be prescribed.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →