Recap• Share (Definition)• Classes of Shares

– Ordinary Shares– Preference Shares– Redeemable Preference Shares

• Share Capital– Nominal or Authorized Capital– Issued Capital– Subscribed Capital– Paid up Capital

Allotment of Shares

Definition• The division of entire share capital into definite

shares, • each of a particular value • And of different classes • & assignment of these shares individually or

collectively to different persons, is called ‘Allotment of Shares’.

• Allotment of shares or issue of shares is essentially the process by which companies pass on new shares to shareholders, who may themselves be new or existing shareholders.

• Companies can issue shares to both individuals or corporate bodies.

Allotment of shares

• In most companies and in most circumstances issue of shares, and share allotment they amount to exactly the same process.

So we’ll use both terms to mean the same thing here.

Allotment of shares

In share allotment, The shares are created and issued by the company to the people who become the company’s shareholders. Shares will generally be issued by the company at the start of its life and some companies will issue more shares later on. A share transfer, in contrast, involves existing shares being passed from an existing shareholder to someone else. That will always take place after the company has been formed.

Difference between Share Allotment and Share Transfer

The main reason a company will issue new shares is to raise money to finance the business. Some examples will help to show the different scenarios where an allotment of shares may be considered. 1. When the company is first incorporated, a number of shares will

usually be issued. This share issue, along with any money that the company may borrow, enables the company to trade. The initial shareholders are often referred to as ‘subscribers’, because they are said to subscribe to the new company’s Memorandum of Association.

Scenarios considered for allotment of shares

2. Shares may be issued in order to repay some or all of the company’s borrowing.

3. New funds may simply be required to grow the business organically.

4. A share issue could be used to fund the purchase of another company. This may mean raising cash from a share issue and using that cash to buy the other business.

Scenarios considered for allotment of shares

Application For ‘Allotment of Shares’ (Section-67)

1. Application must be made:a. On the form specified by the Commission.b. For such amount as prescribed by the Commission.

2. The amount payable shall be the full nominal amount of the shares applied for.

3. All shares & declarations made by the applicant shall be binding on him.

4. Application shall be irrevocable.

Restrictions As To Allotment (Section-68)

Allotment of shares cannot be offered unless:I. Amount of minimum subscription stated in the prospectus

has been subscribed & paid in cash to the companyII. Nominal Value of each share is fully paid.III. Share money is kept in a separate bank account till

certificate of commencement or business has been obtained.

Repayment as to Allotment

If the application for the allotment of shares is not granted then there are few ways of repayments of the charged amount for the shares.

• If the conditions of section 68 are not fulfilled, within the 40 days from first issue of prospectus, all the money received shall be repaid without any surcharge.

• Where the amount is unpaid within the 50 days of issuance of prospectus, then the directors will be jointly and severally liable to repay the amount with a surcharge at the rate of 1.5% for a month .

Repayment as to Allotment

Irregular allotmentAn allotment is irregular if it is made without complying with the conditions precedent to a regular allotment as discussed above.Consequences of irregular allotment depend upon the nature of irregularity involved. These may be noted as irregularities:1. Failure to deliver a copy of the prospectus to the Registrar

before its issue.2. Allotment without raising minimum subscription or without

either collecting application money or collecting less than 5 percent as application money or failure to deliver a copy of statement in lieu of prospectus at least three days before allotment.

Effects of irregular allotment (Section-70)• Any allotment made contrary to the provisions of the

companies ordinance 1984 relating to the allotment are voidable at the instance of applicant.

• The applicant can avoid the allotment within 30 days; – From the date of the holding of the statutory meeting– From the date of the allotment

• If the company is not required to hold the statutory meeting• If the allotment is made after the holding of statutory meeting.Even if company goes into winding up within this period of 30 days, this right to

void allotment is not lost.

Contd…..• It should be noted that it is the applicant who

has the right to avoid the allotment. The company can not take the benefit of its own irregularities and can not avoid the allotment after it is once made.

Contd…..• Every officer of the company responsible for

irregular allotment of shares shall, besides others liabilities, shall be liable to compensate the company and the allottee for any damages or losses caused due to such allotment.

Repayment of money received for shares not alloted (section-71).

• The company within 10 days from shares subscription date shall decide as to whom shares are to be allotted

• The amount of unsuccessful applicants shall be refunded with in 10 days from the decision

Contd…• If the refund is not made within 15 days, the directors of the

company will be jointly and severally liable to repay the amount along with a surcharge at the rate of 1.5% for a month .• They are also liable for a fine up to rupees 5000 and further

fine of rupees 100 per day in case of continuing offence. • However, a director shall not be liable if he proves that

default in making refund was not due to any misconduct or negligence on his part.

Allotment of shares to be dealt on stock exchange (Section 72)

Where prospectus states that an application has been made or will be made for permission of shares to be dealt on any stock exchange,

• Any allotment of shares shall be void if such application is not made within 7 days from the date of issue of Prospectus or

• the permission is not granted by stock exchange within 21 days from the date of closing of subscription lists.

• The stock exchange may extend this period for further 21 days.

Contd…• In case of contravention to the previous, the

company shall refund all the moneys received against application within 8 days from such contravention.

Contd…• In case the money is not repaid within 8 days, then all the

directors will be jointly and severally liable to repay the amount with a surcharge at the rate of 1.5% for a month or a part thereof.

• They are also liable for a fine up to rupees 5000 and further fine of rupees 100 per day in case of continuing offence.

• However, a director shall not be liable if he proves that default in making refund was not due to any misconduct or negligence on his part.

Return of Allotment (Sec 73).

• Every company whether public or private and having a share capital ans within 30 days of allotment is required to send to the Registrar, a document known as the "Return of Allotment".

• The return of allotment contains various details on allotment of shares such as the nominal value of shares allotted, names and addresses of allotees, amount paid or payable on each share

• Particulars of bonus shares and shares issued at discount. The secretary has to see that these documents are prepared and submitted in time to the Registrar.The company shall file with a registrar a return of allotment within 30 days from the date of allotment. Return of allotment should state and include;

In the case of shares issued in cash

1. The number and nominal amount of shares allotted;

2. Particulars of each allottee

3. Amount paid on each share.

In case of shares allotted other then for cash, a duly verified contract shall be submitted to the registrar, stating the following

1. The number and nominal amount of shares allotted;2. The amount to be treated as paid up;3. Consideration for which they have been allotted4. In case of contract is not reduce to writing, the

memorandum of contract shall be filed with the registrar.

In case of shares issued at discount

1. Copy of resolution authorizing such issue;

2. Copy of order of commission sanctioning the issue.

In case of bonus shares

1. The number and nominal amount of shares;

2. The particulars of each allottee. 3. A copy of resolution authorizing the issue.

Coming up• Issue of share at Premium• Issue of share at Discount• Issue of share in lieu of outstanding balance of loan• Further issue of capital (The right issue)• Share certificate• Commission on sale of share