Procedure regarding application of shares

Meaning of application of shares; Steps to be followed for the application of shares.

Meaning of application of shares: It is not an offer in the contractual sense but merely an invitation to an offer.

Application procedure means the procedure required to be followed for collecting the applications for shares.

Procedure regarding application for shares:
(1) Initial decisions relating to issue of shares: Before the issue of shares, the directors will decide about the total amount of capital to be raised by the issue of shares, the type of shares, the value of each share, the terms of issue, the drafting of the prospectus, the listing of shares on a stock exchange, the appointment of bankers, brokers, the appointment of Registrars to the issue, the underwriting of shares etc.

(2) Appeal to investors for shares through prospectus: After taking the initial decisions relating to the issue of the shares and the consent of Securities and Exchange Board of India (SEBI), the directors have to appeal to investors for shares through the prospectus. The prospectus is a document which gives details of a company. It contains an invitation to the public to subscribe the share of the company. It acts as a silent salesman of the company for the collection of capital. It provides basic information about the company and motivates investors to invest their funds in the company by purchasing shares. It is the only window through which a prospective investor can gauge about the financial soundness of the company. A copy of the prospectus must be filed with the Registrar of companies before it is issued to the general public.

(3) Arrangement with bankers: The directors will then make necessary arrangements with the bankers for the collection of application money on behalf of the company. The application money collected by the bankers must be deposited in a special account called "Share Application Money Account".

(4) Collection of application forms and moneys: After the bank has received instructions from the company, they will collect the application form and application money. The bank issue the receipt form appended with each application. It also credits the application money to the Share Application Account of the company. The bank prepares a list of application money received each day and sends to the company along with the application forms collected.

(5) Processing of applications: The applications are processed through sorting. After the sorting is done, the details of each application are entered in a list called "Share Applications and Allotment Lists". The applications are normally arranged in alphabetical order as per the number of shares applied for. The applications and allotment lists are serially numbered. On the basis of the application and allotment lists, the allotment is done.

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Guest Author: Muriithi Mary19 Sep 2015

Well defined! Keep it up.

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