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What is Allotment of Shares?


Posted Date: 19-Mar-2010  Last Updated:   Category: Share Market    
Author: Member Level: Gold    Points: 15


Allotment of Shares; Procedures regarding allotment of shares; Steps regarding allotment of shares



Meaning: It means an appropriation of a certain number of shares to an applicant in response to his application for shares. Allotment means distribution of shares among those who have submitted written application.

Procedures regarding Allotment of Shares:

(1) Fulfillment of statutory conditions which need to be fulfilled: The company secretary has to see that the statutory conditions regarding the allotment of shares are fulfilled before the Board proceeds to allot the shares.

The following are the statutory conditions which need to be fulfilled:
(i) Valid offer and acceptance: There should be a valid offer and acceptance for the allotment to be a valid one. Here the company is the offertory and the acceptors are the general public. If there is no company to offer then there would be no public to accept.

(ii) Unconditional Allotment: The allotment must be absolute and unconditional and also as per the terms and conditions mentioned in the application. The allotment should be unbiased, and not according to the caste, creed, religion. It is not that rich shareholders pay more on the shares and the poor share holders pay less on the shares. All have to pay the same price on the shares.

(iii) Collection of minimum subscription amount: The minimum subscription amount as noted in the prospectus has been received within 120 days of the issue of prospectus.

(iv) Receipt of application money: Not less than 5% of the nominal value of the share has been secured and has been received along with the applications.

(v) Deposition of application of money in a scheduled bank: All application money received along with the applications must be deposited in a scheduled bank. It cannot be withdrawn until the company gets trading certificate or where such certificate is already received or till the minimum subscription amount is received.

(vi) Filing of prospectus with the registrar: A copy of the prospectus or statement in lieu of prospectus has been duly filed with the registrar and at least three days have elapsed after such filing before the allotment is taken up.

(vii) Time of allotment: No allotment of shares can be effected until the beginning of the fifth day from the date of issue of prospectus. The subscription list must be opened for at least 3 days as disclosed in the prospectus.

(viii) Proper communication: The allotment must be duly communicated to the applicant through post i.e. registered post with necessary details.

(ix) Allotment strictly as per documents issued: The Board of Directors have to make the allotment of shares strictly as per the documents issued which include the prospectus and the application form. The provisions made in the Memorandum of Association and the Articles of Association must also be given due consideration.

(x) SEBI nominee: If the issue is over subscribed, the shares are allotted on a proportionate basis. SEBI's nominee is associated while finalizing the basis of allotment. The purpose is to see that the allotment is done on a fair and just basis. The allotment also needs to be approved by a leading stock exchange.

(2) Appointment of allotment committee: The secretary informs the Board, that the share applications are received and are ready for allotment. If the issue is just subscribed or under subscribed, the Board will do the allotment of shares, but if the issue is over subscribed, the Board appoints an allotment committee to do the allotment work. The allotment committee will study the problem, prepare a report and submit to the Board.

(3) Board meeting for finalization of allotment formula: A meeting of the Board of Directors will be called to finalize the allotment formula, which is being prepared by the allotment committee. If the shares are listed, the allotment formula is to be finalized with the approval of the concerned Stock Exchange Authorities.

(4) SEBI's association with allotment work: A representative of SEBI need to be associated while finalizing the allotment formula. For this, the company has to request SEBI to nominate a public representation for allotment work. SEBI's nominee is necessary when the issue is over subscribed.

(5) Signature of chairman on application and allotment list: The secretary has to see that every sheet of application and allotment list is signed by the chairman. The secretary also has to sign the application and allotment lists.

(6)Resolution of the Board for allotment: The secretary has to see that the Board passes a resolution regarding the allotment of shares and authorizing him to issue letters of allotment and letters of regret.

(7) Issue of letters of allotment and letters of regret: After the Board's resolution to allot shares, the secretary prepares the allotment list. Then he will send allotment letters to those who have been allotted shares and regret letters to those who could not be allotted shares.

(8) Refund / Adjustment of application money: The secretary has to make suitable arrangement for the repayment of application money sent by the applicant. The refunded application money is made to those share holders who could bot be allotted shares. The refund order is sent along with the letters of regret. If an applicant has been allotted a smaller number of shares than the number applied for, the secondary has to adjust the excess amount with the amount due on allotment.

(9) Collection of allotment money: The secretary has to make suitable arrangements with the Company's Bankers for collection of allotment money against the allotment letters.

(10) Arrangement relating to letters of renunciation: To renounce means to give up. Certain applicants who are being allotted shares do not want them, so they return the shares back to the company. this is known as renunciation. The blank form of letter of renunciation and letter of request for allotment along with the letter of renunciation duly executed and the original letter of allotment from the renounces, the secretary has to make necessary changes in the Application of Allotment list in order to enter the names of the new allot-tees.

(11) Arrangement relating to splitting of allotment letters: Splitting means putting the shares in one or more names. In case any allottee requests for a split of the allotment letter, the secretary places such a request before the Board for approval. Once the Board approves the splitting of the allotment letter, the secretary has to enter the details of the split in a separate list of split allotments and issue the necessary 'split' letters.

(12) Submission of return of Allotment: 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 and 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.

(13) Preparation of Register of members and issue of share certificates: The secretary has to prepare the Register of members from the Application and Allotment lists. He has to see that the shares certificates are properly printed, sealed, signed and distributed to all the allot-tees within three months after the allotment of shares. He has also to see that the share certificates are issued against the letters of allotment.


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