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Allotment of Shares

It means and implies a division of the share capital into definite shares of a particular value or
of different classes and assignment of such shares to different persons. However, it does not
include re-issue of a forfeited share.

In connection with the allotment of shares, students should note the following:

1.No allotment shall be made of any share of a company offered to the public for
subscriptions unless the minimum subscription stated in the prospectus has been
received. The minimum subscription is the minimum amount which, in the opinion of the
director, must be raised in cash by the issue of those shares to provide for: (i) the
purchase price of any property to be acquired;

(ii) any preliminary expenses, including commissions, payable by the company;

(iii) the repayment of any money borrowed for the above expenditure; and

(iv) working capital.

2.The provisions of minimum subscription will not apply where shares are not offered to
the public but are sold through private negotiations among friends.

3.After the introduction of guidelines by SEBI, the minimum subscription clause is


applicable not only to the first issue but also to the shares offered to the public at any
time.

4.As per the provision of Section 69(3) the amount payable on application on each share
shall not be less than 5% of the nominal amount of the share. As per SEBI Guidelines
2000 (8.6.1) application money cannot be less than 25% of the issue price. It means
entire money can be called by way of application money.

5.If the subscription money is proposed to be received in calls, the calls shall be
structured in such a manner that entire subscription money is called within 12 months
from the date of allotment. [SEBI Guidelines - 2000 (8.6.2)].
6.If the investor fails to pay call money within 12 months the subscription money already
paid may be forfeited [SEBI Guidelines 2000 (8.6.2)].

7.All monies received from applicants for shares shall be deposited and kept in a
scheduled bank:(a) Until the certificate to commence business is obtained under Section
149; or (b) Where such certificate has already been obtained, until the entire amount
payable on applications for shares in respect of the minimum subscription has been
received by the company.

8.Shares may be issued for cash or for consideration other than cash. The shares issued
for consideration other than cash are to be mentioned in the Balance Sheet.

9.The company cannot allot more number of shares than those specified in the
prospectus.

Despatch of refund orders / allotment advice is to be within 2 working days of finalisation of


the basis of allotment

Companies are required to finalise the basis of allotment within 30 days from the closure of
the issue in case of a fixed price issue and within 15 days from the closure of the issue in case
of a book building issue or else they are liable to pay interest @ 15% p.a.