What is Subscribed Stock?

Subscribed stock is an equity instrument that has been purchased under the terms of a periodic payment plan. This approach is most commonly used for employee stock purchase plans, where a deduction is taken from an employee's paycheck and placed in a stock purchase fund. Once the cumulative amount of this deduction is sufficiently large, it is used to buy shares issued by the employer.

Presentation of Subscribed Stock

A corporation that uses subscribed stock presents a Common Stock Subscribed line item on its balance sheet, which is positioned in the equity section. This line item contains the amount of the shares that have been committed to by subscribers, but not yet paid for. There is also a contra-equity account that is paired with this line item containing the amount still owed by subscribers before their commitments are fulfilled. The net amount may be presented on the balance sheet as a single line item.

Advantages of Subscribed Stock

Subscribed stock has several advantages for the investor. There is no stockbroker commission, and the issuer may offer the shares at a small discount from the market price. This approach also works well for the issuer, since it has a ready source of funds, though the amount it collects from stock subscriptions is generally relatively low.

Disadvantages of Subscribed Stock

A business that sells shares through stock subscriptions tend to find itself with a large number of small shareholders, each of which must be sent the annual report and proxy statements. The result is a relatively high mailing cost for the investor relations department.