This article was written by Gitika Jain and further updated by Sneha Saha. This article exhaustively deals with the allotment of shares, which means when a company accepts shares which are made by a person on a prescribed application. The article also explains in detail how the company distributes shares to its applicants. Further, the rationale behind raising the capital of the company and analysing the company’s paid-up capital has also been explained in the article, the general principles and structure of the companies allotting shares to the investors, the nature of shares and the rules and regulations that the subscribed investors have to follow are also discussed here.

Introduction

A share is defined under Section 2(84) of the Companies Act, 2013, and it includes the share capital and stock of the company. It is a portion into which the share capital is divided. A share is an interest held by a shareholder and is measured by a sum of money, primarily including the purpose of liability and, secondarily, a dividend. Allotment of shares is the process of bringing new opportunities to the market by opening an invitation to individuals and institutions to become a part of the organisation. Let us say you want to open a new organisation. You have created your base and gathered a group of people, and now you need funds to create the structure of your company. In order to raise funds, you need a process, which is known as the allotment of shares, where the company and investors come into play. The company opens an opportunity for potential investors to apply for shares and the company offers them the shares. This process followed to create a strong relationship and ownership that follows the same set of interests. Allotting shares is a way to transfer shares to the shareholders to build a promising future by placing the company’s future in good hands. An important factor in business is raising capital, which can either be borrowed or owned. The shares are of two types: equity and preference shares. There are times when the structure of the company has to be changed, which is done either by adding a new shareholder or by changing the current proportion of shares between shareholders. Allotment of shares is the formation and distribution of new shares by a company. New shares can be issued either to new or current shareholders. Offers for shares are made on application forms provided by the company. When the application is accepted, it is called an allotment. The company offering to take shares is the same as the term “allotment.” 

The allotment is initiated by an Initial Public Offering (IPO). This process is followed when the company sells its stock of shares to the public. Then the interested investors subscribe to the shares and make an application to the company to whom the shares are allotted. In simple words, an allotment of shares is the acceptance of a public offer made by the public company, where the investors make an application as an offer to take up the company’s shares. For an allotment to be valid it has to abide by the requirements and instructions of the Companies Act, 2013 and the principles of the law of contract under the Indian Contract Act, 1872 relating to the acceptance of offers. 

Now, the next heading will give an explanation of the concept of allotment of shares.

Concept of allotment of shares under Company Law

Before diving deep into the topic of allotment of shares, it is necessary to understand what allotment really means. The allotment is the allocation of a portion of shares to an underwriting participant during the Initial Public Offering (IPO). When the shares are allotted by the underwriting agreement, the remaining shares are allotted to other investors that participate in the same.

A contract between a company and its shareholder is made through a process when the company offers a prospectus to the public to subscribe to the shares through an application. When a company accepts an offer and allots shares, a binding relationship is created between them. Under Section 2(55) of the Companies Act, 2013, the process is followed by a written application for applying for shares and becoming a member of the company. Re-issuing forfeited shares is not considered an allotment, the reason being that ‘allotment’ means the issuance of original shares and not the re-issue of forfeited shares.

The Companies Act, 2013 incorporated therein forms allotment of shares that are listed on the National Stock Exchange(NSE) and Bombay Stock Exchange(BSE) or any other stock exchanges in India. Other regulations that are applicable for subsidiaries of listed companies include the provision of the Securities and Exchange Board of India  Act, 1992 and the Securities Contract Regulation Act, 1956.

Allotment of shares is basically creating and issuing a new number of shares by the company to the new or existing shareholders. The purpose of allotting new shares is to bring in new business partners. 

Meaning of allotment of shares

Allotment of shares means the company allots shares to the general public. The allotment is distributing the shares among the applicants. When a company issues the shares to the public, it indicates the invitation to the general public to subscribe to its shares. The general public apply for shares of the company, they are known as share applicants. And the final decision is given by the board of directors by passing a resolution.  The process of appropriation of a certain number of shares and distribution among those who have submitted the return applications of shares is known as the allotment of shares. Private companies allot shares after filing a Return of Allotment of Shares. Further, in the case of public companies shares can be allotted anytime but after filing the return within 14 days of allotment. The allotment is followed by a few processes such as by oral or written contract, followed by the provisions of the constitution of the company, and by the exchange for payment of dividend to a shareholder.

General principles for allotment of shares under Company Law

An allotment to be effective must comply with the requirements of the law of contract relating to the acceptance of an offer. 

Allotment by the proper authority

An allotment should be made by a resolution of the Board of directors. Allotment is the primary duty of the directors, and this duty cannot be delegated except in accordance with the provisions of the articles.

Within a reasonable time

Allotment should be made within a reasonable time; otherwise, the application fails. Reasonable time should remain a question of fact in each case. The interval of six months between application and allotment has been held unreasonably. If the reasonable time expires, Section 6 (Revocation how made) of the Indian Contract Act, 1870, applies and the application must be revoked.

Must be communicated

The allotment should be properly communicated to the applicant. Posting a properly addressed and stamped letter of allotment is sufficient communication, even though the letter is lost or held up.

Absolute and unconditional

Allotment should be absolute and according to the terms and conditions of the application, if any.

Allotment should be made only against the application

An allotment should be made in the form of writing and only be made by an application. No oral request can be accepted by any applicant. According to Section 2(55) of the Act, a person should write an application inorder to become a member. 

No contravention 

The process of allotment should not be in contravention of any other law. In cases where shares are allotted to a minor, the allotment can be considered void.

Nature of the shares under Company Law

According to Section 44 of the Companies Act, 2013, the shares of a company are immovable property and, according to the articles of the company, are transferable in the manner specified therein. In the case of Vishwanath vs. East India Distilleries,(1956), the Madras High Court stated that the nature of the share was incorporeal and had a bundle of rights and obligations. 

The Act states the principle by which shares, debentures, or any other interest of any member of the company will be transferred according to the discretion of the company through articles. This section holds the obligation that by any means, a company will not be held liable to set off any amount paid or payable on any shares against any amount that is due to the company from the shareholder. It also provides for the indemnity of the company against any liability arising from the issue of shares or debentures. 

Notice of allotment of shares 

An allotment is considered as a process of accepting an offer of shares by an applicant that needs to be communicated. The notice of allotment of shares is a formal communication given by a company to all shareholders who allocate the shares through the process of allotment. In this step, no binding contract is made except that the acceptance is made by a communication. Therefore the notice must be given to the allottee for the allotment. The main reason for giving this notice is to inform shareholders about the allotment and their allotted shares. After the allotment letter is given, it is addressed and stamped. A contract will arise even if the letter of allotment is delayed or gets lost and delayed during transit. The letter of allotment contains details such as the number of shares applied, the recipient details, the number of shares that need to be allotted, the price of shares allotted, the money that needs to be paid within a specified time to the bankers’ company unless any partial allotment is made and allotment is suitable out of the excess application money. The notice will also include the time when they will receive the share certificate, the rights and any obligation linked with allotted shares, the legal notice and disclosures required by specified laws and, the notice needs to be sealed by an authorised officer of the company.

Modes of allotment of shares under Company Law

Allotment of Shares is the relevance of certain shares to an application and giving the shares to the shareholders who have submitted the relevant application. It is governed by the Companies Act, 2013 with relevant acts and regulations providing certain guidelines for the mode of allotment. The mode of allotment also varies depending upon the various circumstances such as the need for any rules and regulations in a company to maintain capital investment, the demands of market conditions and the preferences of the company’s management and shareholders.

The mode of allotment of shares states the method by which shares are allocated to investors by a company. The allotment of shares is done by the types of the company through various means such as 

• A public company allot shares to the public by public offer through private placement and through the right issue or a bonus issue.
• A private company issues the shares by right issue or a bonus issue and also through private placement or preferential placement. 

Private placement

In the process of private placement, shares are allotted in the process of offering shares to certain investor groups. The investors who participate in the giving prospectus are mainly institutional investors; individuals with high net worth, accredited investors, and well-known venture capital firms identified by the company. In the private sector, there is less public involvement and public offering rather the company uses the process of raising capital without getting into complexities and more cost which can be an issue involving the public.

Initial Public Offering

In the process of Initial Public Offering (IPO), a company tries to offer the shares to the general public. The process happens when a private company gives shares in the stock exchange by which the interested investors apply for the shares through the process of application and then allotted shares are given based on certain conditions such as available market price, rising demand and also by following the regulatory compliance and scrutiny of the company.

Right issue

In this case of right issue, the existing shareholders are given the right to purchase any additional shares comparable to the current market price or to their existing shareholding. This process is followed by the company to raise the capital from the existing shareholdings, giving them an opportunity to work through the new shares at a certain price, as discussed. The right issue allows companies to raise capital from existing shareholder bases and allow them to maintain proportional ownership. 

Preferential allotment

Preferential allotment is a process where shares are allotted to specific investors such as promoters, directors, strategic investors, and institutional investors on a preferential basis with a certain price. This method is followed to raise the capital in a faster way so that more strategic investors can show interest in joining, which will bring great value to the business with a critical shareholder.

Secondary offering

A secondary offering is a process when a company is listed in the public and issues more shares additionally to raise more capital. The purpose lies in expansion, corporate purpose, or repaying debt. It can also dilute other existing shareholders present.

Procedure for allotment of shares under Company Law

In the process of business and corporate finance, shares play an important part. In raising the money or distributing the ownership, the most important thing is to allot the shares. To allot this, there are a few procedures that are required to be followed such as:

• Details of the shareholders and shareholdings: The first and foremost step is to confirm the total number of existing shareholdings and the details of how many shares must be introduced. The final structure of shareholding to shareholders. Details of new shareholders such as their name, date of birth, nationality, residential address, ID proof, and relationship with other shareholders.
• Appointment of the allotment committee: After the final structure of shareholding and the shareholders is completed the secretary informs the Board of Directors to make the final statement for allotment of shares. The allotment committee consists of the board and the secretary. The committee regulates the reason for the allotment and submits the report to the Board. Once the final preparation is completed the formula is made for allotment of shares.
• Conduct of Board meeting: A board agreement is essential for allotting shares. The secretary, after confirming the list of shareholders, all the shareholdings, and the new structure of shares that is to be distributed, makes the necessary arrangements for the board meeting. The board meeting, which has to be confidential, includes all the new structure of shares, and how it will be distributed, detailed information about shareholders and the application, and allotment lists that are made. This list should contain the allottee’s names and also it must be signed by the chairman and secretary.
• Passing Resolution for allotment to the Board: The board takes the decision regarding the allotment of shares, and hence the board meeting is conducted with regard to it. A resolution is passed in the board meeting which authorises the secretary to issue the letters of allotment.
• Collection of allotment money: The allotment letter states the amount that needs to be paid by the applicant on the allocation of shares. The secretary should make the necessary arrangements with the company’s bank within a stipulated period for collecting the allotment money. The money must also be paid within the given period in the bank.
• Issue new share certificates and prepare the register of members: The new share certificate needs to be shared in the companies, especially with the shareholders, with the details of the new structure of shares within the two months of allotment of shares. All previously issued share certificates will remain cancelled once the new certificate is provided. The secretary prepares the register of members according to the allotment lists and updates all the members who have paid the amount for the allotment of shares.

Difference between allotment of shares and issue of shares

• The allotment of shares means the allocation of authorised shares of stock to investors in a company. The issuing of shares is a way of distributing the shares to potential shareholders by offering ownership.
• The parties and the method used for share allotment will be according to the prior issue of shares. Also, the issue of share will be based on the criteria of allotment.
• The allocation of shares is completed once the shares have been applied for. The issue of shares is complete through the process of offering shares for sale or by subscription.
• The board of directors in the company decides how many shares need to be allotted to all shareholders. The management gives the final say in the terms and conditions that are followed in offering shares.
• The allocation of shares is followed by the number of applications received.  The issue of shares is done by the process of making shares available to the market where the purchaser is required to purchase.

How are shares allocated during an IPO

Hearing the news of IPO launches by renowned companies, investors usually get excited. IPOs are an important financial tool for raising funds from the public for some companies that require them. It is raised by companies when they feel confident about their future performances.

From time to time, companies’ IPOs are announced among the public and investors who are waiting for this opportunity.

Companies, by issuing public share ownership, raise capital from the public through IPO. Although there are various risks associated with announcing an IPO, only when the company feels that it has reached a certain maturity stage, where it can benefit the targeted public, does it announce an IPO. 

The number of IPO defaults on a yearly basis depends entirely on the economy. For example, during the 2008 financial crisis, the IPO market was destroyed completely. 

Although the company announces an IPO to the public at large, it does not mean that everyone is qualified to receive an IPO. Only on the basis of the share volume of each investor does the company offer an IPO. The Securities and Exchange Board of India (SEBI) governs the rules of allotment of shares. 

Provisions of the Companies Act relating to the issue and allotment of shares [Section 39]

Section 39 of the Companies Act, 2013 ensures that during the process of issuing and alloting shares transparency and fairness are maintained. This provides a clear process of allotment and fundraising. Ensuring timely payments and imposing penalties on those who do not abide by the rules and regulations of the company. To uphold the principles of the company and the integrity of the capital market. These provisions ensure that a minimum subscription is required to allot shares. The application money should be payable on the basis of the nominal value provided by the company. To allot shares within a time frame and also file returns within the specified time period. Also, the Securities and Exchange Board of India(SEBI) and Registrar of Companies(Roc) needs to ensure that companies follow the guidelines provided by them. Some of the important points as per the aforementioned provision is mentioned as under;

• A public company should file a prospectus or declaration in lieu of a prospectus inviting the public offers for the purchase of shares.
• After reading the prospectus, the public applies for company shares in printed forms. The company can ask the issue price to be paid in full, together with the application money, or to be paid in instalments as share application money, share first call, second call, etc. The application money must be paid at least five per cent of the nominal value of the share. [Section 39(2)]
• The allotment of shares cannot be made unless the minimum amount which is the minimum subscription stated in the prospectus, is subscribed or applied. The minimum subscription should be mentioned in the prospectus. [Section 39(1)]
• The company must return and refund the entire subscription amount instantly if within 30 days the total sum is not received from the date of issue of the prospectus or such other date specified by the Securities Exchange Board. [Section 39(4)]

After allotment of shares, the company can call for the full amount or instalments which are due on shares from the shareholders according to the rules mentioned in the prospectus. Usually, the articles of the company include provisions regarding calls of the total amount of due shares is required to be distributed. If there are no such provisions, then these provisions are applicable:

1. No call should be made for more than 25% of the nominal value of each share.
2. The interval between two calls should not be less than one month.
3. At least 14 days should be provided to each member for the call, mentioning the amount, date, and place of payment.
4. Calls should be made on a uniform basis to the entire body of shareholders falling under the same class.

Rules of allotment of share

The general procedure that is accepted in the law of contract also applies to the allotment of shares. These are:

• The resolution of the board of directors must be done prior to allotment. The directors cannot be delegated this duty, and it becomes very important that a valid resolution is passed by the board for allotment in a valid meeting.
• According to Section 6 of the Indian Contract Act, 1872, it is important that the allotment of shares is done within a reasonable period of time, but this reasonable time varies from case to case. The refusal to accept the shares by the applicant is the choice if the allotment is made after a very long time to him. The same thing happened in the case of Ramsgate Victoria Hotel Company vs. Montefiore (1866), wherein the allotment of the share was made at an interval of six months between application and allotment, and it was held unreasonable.
• Moreover, the allotment must be unconditional and absolute and must be allotted on the same terms upon which they were agreed upon during the acceptance of the application. 
• Acceptance is the key to allotment and without acceptance of valid allotment cannot be made just on an oral request.

Statutory restrictions on the allotment of shares

Minimum subscription and application money[Section 39(4)]

The first essential requirement for a valid allotment is that of minimum subscription. The amount of the minimum subscription has to be declared in the prospectus at the time when shares are offered to the public. Shares cannot be allotted unless at least so many amounts have been subscribed and the application money, which must not be less than 5% SEBI may decide the various percentages of the nominal value of the share, has been received by cheque or other instruments. It has been established by various cases that it is a criterion to valid allotment that the entire application money should be paid to and received by the company by cheque or other instruments. If the shares allotments are made without application money being paid, it is invalid. If the minimum subscription has not been received within thirty days of the issue of the prospectus, or any such period as specified by SEBI, the amount has to be returned within such time and manner as prescribed. Application money can be appropriated towards allotment, or it has to be returned or refunded. [Section 39(4)]

• Return of allotment [Section 39(4)] – A return of allotment has to be filed with the registrar in the prescribed manner whenever a company makes an allotment of shares having a share capital.
• Penalty for default [Section 39 (5)] – In case of default, the company and its officer who is in default are liable to a penalty for each default of Rs 1000 for each day during which the default continues or Rs 1,00,000 whichever is less.

Shares to be dealt in on the stock exchange [Section 40] 

Every company, aiming to offer shares or debentures to the public by the issue of the prospectus, has to make an application before the issue of shares to anyone. Also, before accepting the stock exchange permission for the shares or debentures need to be dealt with during the exchange. The need is not merely to apply, but also to obtain permission. In the prospectus, the name or names of the stock exchanges to which the application is made must be stated. 

The aforementioned requirement is precedent for listing the shares and the application money needs to be deposited in a separate bank account before that which will be used only for adjustment against the allotment of shares. And in case the shares need permission to be dealt with in the specified manner in the prospectus. Hence, the money will be used for the repayment to applicants within the time specified by SEBI, if the company has not been able to allot shares for any other reasons. [Section 40 (3)]. 

The object of this section is that it will help shareholders to find a ready market so that they can convert their investments into cash whenever they like. In the Supreme Court case of Union of India vs. Allied International Products Ltd,(1970), this objective of the Section was explained.

Over-subscribed prospectus

In cases when stock exchanges give permission, the allotment is valid and the given prospectus gets oversubscribed, in such case the portion which is oversubscribed and the money which is received will be returned to the applicants within the given period of time 

Effect of Irregular Allotment

An allotment can be considered irregular if any allotment is made without complying with any conditions prescribed to regular allotment as contained under Section 39 of the Companies Act, 2013. The allotment can be considered irregular in certain cases, as mentioned below:

1. In a case in which allotment is made before gaining the minimum subscription or before gaining the money, which is subject to a minimum of five per cent of the nominal value of the share, or without having filed a declaration or statement.
2. In lieu of declaration with the Registrar of Companies, the allotment will be considered void at the point of the allottee’s or applicant’s submission.
3. If the process of allotment is defective, for the reason that it was allotted before the expiry of the 5^th day or after the publication of the declaration issued, the allotment shall remain valid, but the officers will be in default and will be liable to a fine.
4. The allotment will be considered defective if no permission is obtained from the Stock Exchange by making any application and if the application was made but the Stock Exchange has not agreed to list the shares, then in such cases the allotment will remain void.

Return of allotment to be filed with the Register

Once the process of allotment of shares has been completed by the company, a return of allotment is required to be filed with the Registrar of Companies, by filing Form No. 2 within 30 days of the allotment. The Return should include specific details, such as

In case of shares are allotted for cash:

1. Total number of shares allotted.
2. Name, address and occupation of all allottees.
3. The total amount paid or payable on each share.

In the case of shares, other than bonus shares, are allotted as fully or partly paid up, consideration for allotment of shares is paid by property, goods or services; in such case, the return must include:

1. A contract which is a written format includes the title of the allottee to the shares.
2. Contract of sale or any other services and consideration for which the allotment was initiated.
3. A return includes numbers and shares that are allotments paid up and the consideration for which they were allotted.

Where a company puts forward to issue bonus shares by capitalising undistributed profits or free reserves, it must take permission from the Controller of Capital Issues before making that allotment and, after the allotment, prepare a return of allotment in the prescribed Form 2 and file it with the Registrar of Companies together with the filing fee and with a copy to be submitted of the resolution authorising the issue of such shares. If shares are issued at a discount, the Return in Form 2 with a copy of the resolution authorising the share issued and the order of the Tribunal authorising the issue must be filed with the Registrar. In the case of re-issuance of forfeited shares, no return is needed to be filed so that allotment is not performed. 

Reference case and other important case laws

The term allotment has not been defined in the Companies Act, 2013. The meaning can be interpreted from various cases that were decided in India, some of the cases are:

Shri Gopal Jalan and Company vs. Calcutta Stock Exchange Association Limited (1963)

Facts

In this case, Shri Gopal Jalan and Company v Calcutta Stock Exchange Association Limited, (1963), the Calcutta Stock Exchange Association Ltd issued capital of 277 fully paid shares of Rs 1000 each. 70 shares were forfeited by the Calcutta Stock Exchange Association, and those forfeited shares were reissued later on. 

Under Section 75(39) of the Companies Act, 1956, the Calcutta Stock Exchange Association did not file the return for such forfeited shares that were re-issued. This made Shri Gopal Jalan & Company approach the court requesting an order stating that the Calcutta Stock Exchange Association needs to file the return of the allotment with regard to the re-allotted shares.

Issue

• Whether the company is obliged to file any return on the allotment of shares that were re-initiated after being forfeited by the respondent?
• Under Section 75(1) of the Companies Act 1956, what does the term ‘allotment’ specify?

Judgement

The Supreme Court held that the appeal which has been filed by Shri Gopal Jalan company is dismissed because, for the Calcutta Stock Exchange, it is not compulsory to file returns under Section 75 of the Companies Act, 1956. As this section, read with Sub-section (5), upholds the principle of ‘ex abundanti cautela’ that is out of abundant caution which states to put a stop to an argument from being raised that if shares are forfeited on any non-payment of calls or re-issued, a return is required to be filed and at the same time held dismissed. 

The court also stated that Jalan’s argument was based on the doctrine ‘expressio unius est exclusion alterious’. The statement means when a thing is not expressly stated then the other things having the same meaning will not be included and, thus cannot be applied in the case. The court held that the term ‘allotment’ is primarily used to alert the process of forestalling any potential contention arising from the return of shares that have been forfeited due to the non-payment of calls. 

Khoday Distilleries vs. CIT (2008)

Facts

In this case Khoday Distilleries vs. CIT (2008), the Khoday Distilleries issued rights shares, but twenty out of twenty-seven shareholders did not subscribe to their rights. Khoday Distilleries then made the decision to share the remaining unclaimed shares with seven investment companies. The Assessing Officer (A.O) stated that the allotment of shares was to evade taxes, no consideration was made, and it was deemed a gift under Section 4(1) of the Gift-Tax Act, 1958, which was taxable. The Assessing Officer also explained the difference between the share value and face value.

Based on this decision, the Commission of Income Tax (CIT) made an appeal stating that the whole thing was to evade wealth tax and to claim that the entire tax liability would fall under existing shareholders who have renounced their rights and not the Khoday Distilleries and ought to have initiated gift tax proceedings to the existing shareholders. The CIT also stated that the Khoday Distilleries did the whole exercise in order to avoid paying wealth tax and held that the company is liable to pay gift tax for the transfer of the said shares to the seven investment companies.

The Tribunal, on the other hand, reversed the CIT decision, stating that there is no element of a gift present in this case based on Section 4(1)(a), as any kind of transfer of property was not made as stated under Section 2(xxiv) of the Gift-Tax Act, 1958, and allotted rights do not include transfer but consideration. Based on this decision, an appeal was made to the high court claiming that there is a taxable gift in allotted shares.

Issue

• Whether under Section 2(xii) of the Gift Tax Act, 1958, that ‘gift’ qualifies as a taxable gift in the case of the allotted shares.
• Did the bonus shares in the ratio 1:23 also include ‘gift’ under section 2(xii) of the Gift Tax Act?

Judgement

It was held that the contention that the allotment of right and bonus shares by the company in an inappropriate manner was done because it was a gift was outright rejected. The creation of shares by an appropriation to a particular person out of the appropriate share capital is known as the allotment. The court gave an explanation that issuance of the bonus shares does not mean treating it as a gift under the Gift Tax Act. The shares that the shareholder received were the company’s profit that is accumulated in the structure of additional share capital, not a gift. It was also held that according to Section 4(1)(a) of the Gift Tax Act, an allotment is not a transfer and it does not attract this section. The company which issued the bonus shares was nothing but the capitalisation of the profits of the company.

Importance of allotting shares in a company

• To uphold the foundation of the company and meet the strong needs the process of allotment is required. 
• It is considered a crucial step to raise capital and creates a better funding income. When a company offers new shares it means to raise capital. A company follows the process by offering stock for sale to the public through an Initial Public Offering(IPO).
• It helps to build a financial structure and make the best decision for the company’s future. Allotting shares is not just to fund the company but to raise the capital but to give reward to shareholders in the company.
• Allotment is important in a company to increase the value for which shareholders can increase their stake in the company. 

Conclusion

Hence, we can conclude that the allotment of shares is issuing new shares by the company to the public at large, who are original or existing shareholders. The main confusion among the public lies between the issue of shares and the allotment of shares. The process of allotment of shares plays a crucial role in raising capital growth, clear visibility, and credibility in the business sector. To ensure the company’s growth and development, it is important to raise capital and expand its operations through the process of allotment, which will benefit both the company and the shareholders. Shareholders gain a lot of benefits because they have more money to earn and because of the investment that they have made. Through this process, the company also achieves its maximum target of expansion and holds a strong position in the market. To sum up, we can see that the issue of shares is the process of offering shares to the shareholders, where the allotment of shares is the distribution of shares in the company where a company itself takes the decision of acceptance in this case. The most important procedure in the company is the allotment of shares, which mainly means the expansion of the business by offering shares to the public at large.

Frequently Asked Questions (FAQs)

What is meant by the allotment of shares?

After issuing new shares or Initial Public Offering (IPO), the process of allotting shares is done by the company where shares get distributed to the applicant, and they become a potential shareholder in the company.

How is the process of allotment of shares decided?

The allotment of shares is done based on the total number of shares available, the number of shares that are opted for, and the company’s allotment policy. It is the company’s duty to ensure that the allotment of shares will be followed by a fair and equitable process.

How does the allotment of shares benefit employees?

By the Employee Stock Ownership Plans (ESOPs), employees get share allotment benefits as it aligns employees’ interests with the company’s success.

What is the role of regulatory authorities in the allotment of shares?

Regulatory authorities ensure that the allotment of shares is followed in a smooth, fair, transparent, and compliance with security laws. Also, they check the documents, and investors’ interest, and approve the issuance of shares.

What is an IPO?

An Initial Public Offering (IPO) is when a private company’s shares are given to the public for the first time. The IPO assists the company raise share capital through the investment created by the public.

What happens if the issue of shares are oversubscribed?

If the shares that have been issued are oversubscribed, then the company needs to reduce the number of shares that have been distributed to every applicant. Moreover, the company tries to increase the number of shares issued.

References

• https://www.differencebetween.com/difference-between-allotment-and-vs-issue-of-shares/
• https://www.indialawoffices.com/knowledge-centre/allotment-of-shares
• https://www.google.co.in/books/edition/Company_Law/MIE9fAyyPTIC?hl=en&gbpv=1&dq=allotment+of+shares+under+company+law+in+india&pg=PA1&printsec=frontcover
• https://nios.ac.in/media/documents/SrSec320NEW/320_Accountancy_Eng/320_Accountancy_Eng_Lesson29.pdf