Name : Himanshu Premani

Class : TY BBA-IB
SUBJECT : Business Law
Topic : Allotment of Shares
 What is Share ?

 Shares are units of equity ownership interest in a corporation that exist as a

financial asset providing for an equal distribution in any residual profits, if any
are declared, in the form of dividends. Shares Represent equity stock in a firm,
with the two main types of Shares being common Shares and preferred Shares.
 In Simple terms, a Share is a percentage of ownership in a company or a financial
asset. Investors who hold Shares of any company are known as shareholders.
 What is allotment of shares ?

 Allotment arises when directors of a company earmark new shares to

predetermined shareholders. These are shareholders who have either applied for
new shares or earned them by owning existing Shares. For example, in a stock
split, the company allocates shares proportionately based on existing ownership.
 The companies act had laid down detailed procedure for the issue and allotment
of shares which company has to follow.
 In addition we will see the Consequences of irregular allotment rules related to
issue of shares at a premium or at a discount and the procedure for the forfeiture
and the reissue of forfeited shares.
 Meaning of Allotment of Shares

 A public limited company in word substitution from the public and for this
purpose a prospectus is issued.in response to this invitation the prospective
investors offers to buy shares by submitting the prescribed application form. If the
application is accepted by the company it proceeds to alert him Shares.with the
issue of the letter of allotment the offer stands accepted their my giving rise to a
legally binding contract between the company and the shareholders. Does an
allotment is the acceptance by the company of the offer to purchase shares.
 The term allotment has now where been defined in the companies act it may be
said that allotment in an appreciation by the board of directors of a certain
number of shares to be specified person in response to this application in other
words allotment means the appropriation out of the previously an approx created
capital of a company of a certain number of shares to a person.
 Notice of Allotment
 An allotment is the acceptance of an offered to take shares by an applicant and
like any other acceptance it must be communicated. There can be no binding
contract unless the acceptance of the offer is properly communicated. Does
notice of allotment must be given to the if the letter of allotment is properly
posted that is it is correctly address and stamped a contract will ariseif the letter
of allotment is properly post painted that is it is correctly address and stamped a
contract will arise even if the letter of allotment is delayed or lost in the course of
transit.
 In this letter of allotment besides other details of the number of shares applied
for the number of shares allotted etc.reality is asked to pay the money due on
allotment to the company’s bankers within a specified time unless there is a
partial allotment and the allotment money is appropriate out of excess
application money.
 Rules regarding allotment of shares

 General Rules
 The allotment is the acceptance of an offer to purchase certain number of shares
therefore the general rules relating to valid acceptance of an offer must be
followed the general rules regarding allotment of shares are as follows
1. The allotment must be made by proper authority
2. Development should be made within a reasonable time
3. It must be communicated.
4. It must be absolute and unconditional.
 Rules regarding allotment of shares

 Legal rules
 The private companies are concerned the act does not lay down any restriction to
the allotment of shares but the act has laid down certain restriction regarding the
allotment of shares by public companies
 When no public offer is made : Where public company does not offer its shares to
the public but arranges the capital privately the company cannot proceed with
the allotment unless it files with the register of the companies at least three days
before the first allotment a statement is lieu of prospectus.
 Procedure of allotment

 When the company received from bankers all the share applications a shared
application list is prepared.
 The names of such applications should be recorded who have paid the
application money because an application without application money is void.
 The directors will see that all the legal rules regarding allotment have been
complied with then they will proceed with the allotment of shares.
 If the issue has been just fully subscribed then there is no problem in allotment
the directors can allowed to each applicant the number of shares ask for.
 In case of oversubscription the shares allotted either by draw of lots on Pro rata
basis that is by alloting shares to each applicant in the proportion to the number
of shares applied for.
 Procedure of allotment

 Will listen number of shares allotted to an applicant the access application on

money is not refunded to him but it is transferred to his allotment amount a
head exit against the allotment money due from him.
 In case of under subscription the board of director has only to ensure that the
minimum subscription has been received then they can proceed with the
allotment work.
 When the board of director was a resolution confirming the allotment and if for
some reason no shares allotted to an applicant then a letter of regret is changed
to him along with the cross checked for the refund of the share application
money.
 Return as to allotment

 Section 75 of the companies act provides that when a company having a share
capital makes any allotment of its shares the company must within 30 days of the
allotment file with the register a report known as “return as to allotment”.
 The return must contain particulars relating to the number and nominal amount
of shares allotted renames address and the occupation of the allottees and the
amount due for paid on allotment.
 Where shares are allotted for consideration other than cash the company will
produce for the inspection of the registrar a contract in writing constituting
contract of sale or for services for which the shares are been allotted
 Irregular allotment and its
consequences.
 An allotment of shares shall be termed irregular if it is made without fulfilling the
condition precedent to a regular allotment. The allotment of shares is a regular
in the following cases :
1. When allotment is made without receiving the minimum subscription.
2. Where an allotment is made without receiving at least 5% of the nominal value
of shares as application money.
3. Where an allotment is made without depositing the application money in
scheduled bank.
4. In the case of a company which does not invite public to subscribe its shares if
the allotment is made without feeling with the register the statement in lieu of
prospectus at least three days before the first allotment of shares.
 Where the company fails to apply for listing of its shares in one or more recognised
stock exchange before the tenth day after the first issue of prospectus or where such
permission has been applied for before that day but the permission has not been
granted by stock exchange before the expiry of 10 weeks from the date of closing of
subscription list.
 Where the allotment is made before the expiry of the fifth day after the date of issue
of prospectus.
 Consequences
1. Voidable at the option of the allottee
2. Fine
3. Allotment is Void
4. Director’s liability
 Issue of shares at a discount
A company may issue shares at a price less than the face value of the share in that
case it is term as issue of shares at a discount for example if a share of rupees 10 is issued
at rupees 9 per share it means that the share is issued at a discount of rupees 1 generally
the issue of shares at a discount is this courage and that is why the companies act has
composed stick restriction on the issue of shares at a discount.
. Section 79 of the companies act provides that a company may issue shares at
discount if the following conditions are satisfied :
 The shares offered at a discount must be of a class already issued that is the first issue
cannot be at a discount.
 At least one year must have elapsed since the company became entitled to
commence issue it means that in the first year of its working shares cannot be issued
at a discount.
 The issue must be authorised by an ordinary resolution passed in the General meeting of the
company and this must be confirmed by the company law board.
 The resolution must be specify the maximum rate of discount which in no case shall exit 10%
however a higher rate of discount may be allowed if the company law board agrees to a higher
rate.
 The shares must be issued within two months after receiving the sanction of the company law
board or within such extended time as the company law board may allowed.
 Every prospectus shall contain particulars of the discount allowed on the issue of shares are so
much of that discount as has not been written off on the date of issue of prospectus.
Where the shares are issued at a discount in contravention of the above provisions the
company and every officer of the company responsible for the contravention are liable to a fine
upto rupees 50 for the realities of such as who allow themselves to be register as members shall be
required to pay the full of values of their shares.
 Issue of shares at a premium

There can be cases when the company may issue shares at a higher price than
the face value of the shares this is term as issuing shares at a premium. For example
when a share of rupees 10 each is issued at 12 per it is an issue at a premium the
amount of premium being 2 rupees . there is no restriction on the issue of shares at
a premium if the company’s reputation is good then it can sell shares at a premium.
Though the companies act does not provide for any condition for the issue of
shares at a premium it regulates the disbursement of the amount collected as
premium.
The premium amount cannot be treated as profits and as such it cannot be
used for paying dividends.the premium amount must be transferred to a separate
amount known as “share premium account”. Where the shares are issued at a
premium for consideration other than cash and amount equal to the amount of
premium must be transferred to “share premium account”.
The amount of share premium account can be used only for the purpose specified under
section 78 of the act these purpose are :
 Issue of fully paid bonus shares to the members of the company.
 Writing of the preliminary expenses of the company.
 Writing of the expenses commission paid or discount allowed on the issue of the shares
of the company
 To provide for the premium payable on the redemption of preference shares are
debentures of the company
. The balance sheet of the company must disclose the amount of share premium and if
it has been disposed of partly or wholly it must also disclose the manner in which it has
been disposed of . the share premium amount should not be treated as free reserves as it
is in the nature of the capital reserve.