Allotment of Shares in Company Law

It’s a critical step that transforms interested parties into shareholders with ownership rights within the company. Allotment of shares in company law refers to the formal process by which a company assigns newly issued shares to subscribers. This allotment typically occurs after an initial public offering (IPO) or when a company issues new shares to raise capital.

Procedure for the allotment of shares in company law:

The procedure for allotment of shares in company law refers to the process of allotting shares to the shareholders who have applied. When a company issues new shares, it invites applications from the public or existing shareholders. Once the company receives the applications, it processes them and decides on the allotment of shares.

The allotment process involves assigning a specific number of shares to each shareholder. It is based on the number of shares applied for and the number of shares available for allotment. After the allotment of shares in company law to the shareholder, he becomes the owner of the company.

Example of allotment of shares in company law:

Consider a scenario where our company issues 100,000 new shares to raise capital. After advertising the share issue, we received applications for 150,000 shares. Depending on allocation criteria, a company decides to allot shares proportionally. An investor applying for 2,000 shares might receive 1,333 shares. It is allotted proportionally (2,000 shares requested / 150,000 total requested shares * 100,000 shares available). This process ensures a fair distribution of share among all applicants.

Types of allotment of shares in company law:

Types of share allotment and big share allotment are private placement, right-issue public placement, and preferential allotment and issue of shares. Let me explain each of them briefly:

Right Issue: The right issue refers to the process of offering shares to existing shareholders of a company. It is in proportion to their existing shareholding. This means existing shareholders are given the right to purchase additional shares at a discounted price.

The right issue is the option that is generally used by company to raise capital from existing shareholders.  raising capital without diluting their ownership.

Private placement: private placement involves selling shares to a select group of investors, such as institutional investors, high-net-worth individuals, or existing shareholders.

Companies typically use private placement to raise capital quickly and efficiently without needing a lengthy and expensive public offering. Private placement can also help companies maintain control over their ownership and management.

Public placement: Public placement involves selling shares to the general public through an initial public offering (IPO) or a follow-on public offering (FPO). For the purpose of private placement, the company shall comply with various rules and regulations made by competent authority(ies) on this behalf, such as  filing a prospectus with the Securities Exchange Board of India (SEBI) and obtaining necessary approvals. Public placement can help companies raise significant amounts of capital and increase their visibility and credibility in the market.

Preferential allotment: Preferential allotment means the allotment of shares in company law to a select group of investors, such as promoters, directors, or others close to the company.

A company uses preferential allotment for the purpose of raising capital from a select group of investors who can bring strategic value to the company, such as expertise or connections.

Process of allotment of shares:

The following steps are involved in the process of allotment of shares:

Announcing the details of the issue: The company issuing the shares will announce the details of the issue, including the number of shares being offered, the price per share, and any other terms and conditions.

Inviting applications: Potential investors or current shareholders can apply for these shares by submitting an application form and making the necessary payment.

Processing of applications: Once the application process is closed, the company will process the share applications and find out the allotment of shares form. This involves confirming the applicants’ eligibility, checking for any oversubscription or undersubscription, and allocating the shares depending upon the number of shares applied for and the availability of shares.

Preparing the allotment list: The company shall prepare the allotment list stipulating the number of shares allotted to each applicant.

Issuing share certificates or demat statements: After the allotment list is completed,. the company shall issue share certificates or demat certificates to the shareholders who have been allotted shares.

Within 30 days from the date of allotment of share in case of share

Within 60 days from the date of allotment of share in case of Debenture.

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