Allotment of Shares
“Allotment of shares” is used to indicate “… the creation of
shares by appropriation out of the unappropriated share capital to a particular
person.
Rules Regarding Allotment
of Shares:
The following rules
regarding allotment of shares are noted:
(a) Application Form:
A prospectus is an
invitation to the public to purchase shares. Naturally, the intending purchaser
has to apply in a prescribed form (given in the prospectus) for the purpose
which is known as ‘application form’.
Needless to mention that the
prospectus fixes the time when the application will be opened and the allotment
will be made. Letter of allotment should be sent to the applicant of shares
after the allotment is made.
(b) Offer and Acceptance:
We know that membership
of a company after purchasing shares is nothing but a contract. The application
form which is given by the members is the ‘offer’ and allotment by directors is
the ‘acceptance’ of that ‘offer’ and, similarly, the notice of acceptance which
is sent is the ‘acceptance of the offer.’
(c) Conditional offer and
Acceptance for ‘Offer’:
Usually, the conditions
are printed in the application form, e.g., in case of over-subscription of
shares, shares will be allotted on pro-rata basis (Pro rata is a Latin term used to describe a proportionate allocation)
etc. Conditions for acceptance is practically invalid.
(d) Proper Authority:
It should be remembered
that allotment of shares should always be made by the proper authority e.g., by
the board of directors and allotment made without proper authority is void.
Although allotment can be delegated to some persons if the Articles so provide.
(e) Reasonable Time:
After receiving the
application form allotment should be made as soon as possible by the directors
i.e., within a reasonable time. Otherwise, applications for ‘offer’ will be
revoked if such reasonable time expires.
(f) Fictitious Name:
Company Act states that
any person who
(i) Makes in a fictitious
name for acquiring or subscribing for any share; or,
(ii) induces a company to
allot, register any transfer of shares to him or any other person in a
fictitious name shall be punishable by imprisonment up to 5 years.
Restrictions on Allotment
of Shares:
The following
restrictions have been prescribed by the Companies Act regarding allotment of
shares:
(a) Minimum Subscription:
No allotment can be made
by the company until the minimum subscription (mentioned in Prospectus or AOA and
if not mentioned then 90%) has been received within 30 days. (Next 15 days to
be returned if not received min subscription)
(b) Application Money:
Act lays down that the
amount payable on each share with the application form must not be less than 5%
of the nominal value of the shares.
(c) Money to be Deposited
in a Scheduled Bank:
Money received from the
applicants must be deposited in a Scheduled Bank until the certificate to
commence business has been obtained or until the entire amount payable on
applications for shares in respect of the minimum subscription has been
received by the company.
d) Allotment of shares to
dealt in on stock exchange.
Every company intending
to offer shares to the public for subscription by the issue of a prospectus
shall, before such issue, make an. application to one or more recognised stock
exchanges for permission for the shares to be dealt with in the stock exchange.
Thus, now it is made compulsory that the shares must be listed on a recognised
exchange. The prospectus must state the name of the stock exchange or each of
such exchanges where the application has been 'made. Ff the permission has not
been granted before the expiry of ten weeks from the date of closing of the
subscription lists, the company must immediately repay the money received from
the applicants.
(e) Returns of Money:
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