Allotment of Shares

SYED IFTIKHAR-UL-HASSAN SHAH

LEARNING OBJECTIVES
After learning this chapter, you should be able to:
 Explain the meaning of allotment of shares
 Describe the rules relating to allotment of shares
 Explain the con-sequencer, of irregular allotment
 List the circumstances under which the shares can be issued at a discount and at a
premium
 Explain the meaning of a share certificate and a share warrant, and distinguish flanked by
the two
 Explain the essentials of a valid call
 Describe the circumstances under which the shares can be forfeited and reissued
 Explain the rules for the surrender of shares.
Elements of Company Law

 Allotment of shares
 Notice of Allotment
 Rules Concerning allotment of shares
 Common Rule
 Legal Rules
Common Rule

 The allotment necessity be made through proper authority

 The allotment should be made within a reasonable time
 It necessity be communicated
 It necessity be absolute and unconditional
Legal Rule

 A prospectus necessity be issued and a copy of the similar should be filed

with the Registrar:
 Minimum subscription
 Application money
 Application money to be deposited in a scheduled bank
 Allotment of shares to dealt in on stock swap (Section 73(1)).
 Subsequent allotment of shares
 Procedure of allotment
 Returns as to allotment
 Where shares are allotted for consideration other than cash
 Where shares are issued at a discount
 In the case of bonus shares
 IRREGULAR ALLOTMENT AND ITS CONSEQUENCES

The allotment of shares is irregular in the following cases:

 Where an allotment is made without getting the minimum subscription.
 Where an allotment is made without getting at least five per cent of the
nominal value of shares as application money.
 Where an allotment is made without depositing the application money in a
scheduled bank...
 In the case of a company which does not invite public to subscribe its shares,
if the allotment is made without filing with the Registrar the 'Statement in lieu
of prospectus' at least three days before the first allotment of shares.
Cont.
 Where the company fails to apply for listing of its shares in one or more
recognized stock exchanges before the tenth day after the first issue of
prospectus or
 where such permission has been applied for before that day but the
permission has not been granted through the stock swap before the expiry
of ten weeks from the date of the closing of the subscription list.
 Where the allotment is made before the expiry of the fifth day after the date
of issue of the prospectus.
Consequences

 Voidable at the option of the allottee

 Fine
 Allotment is void
 Director's liability
Share capital

‘Share capital 'means the capital raised by a company by the issue of share.
The word ‘capital’ in connection with the company is used in several senses.
1. Authorized or nominal capital.
2. Issued and subscribed capital.
3. Called up capital.
4. Paid up capital.
5. Uncalled capital.
6. Reserve capital.
Types of share

A) Preference shares.
 Preference shares, with reference to any company limited by shares, are
those which have two characteristics.
• They have a preferential right to be paid dividend during the lifetime of the
company
• They have a preferential right to the return of capital when the company goes
into liquidation.
Cont.
B) Equity shares. equity share, with a reference to any company limited by
share, are those which are not a preference share.
 with voting rights, or
 with differential rights as to dividend, voting or otherwise in accordance with
such rules and subject to such conditions as may be prescribed.
C) Sweat equity share. The expression sweat equity share means equity share
issued at a discount or for consideration other than cash for providing know-
how or making available rights in the nature of intellectual property right or
value additions.
Kinds of preference shares

1. Cumulative preference shares.

2. Non-cumulative preference shares.
3. Participating preference shares.
4. Non-Participating preference shares.
5. Convertible preference shares.
6. Non-Convertible preference shares.
7. Redeemable preference shares.
Issue of share at a discount
 Section 79 of the Companies Act gives that a company may issue shares at
a discount, if
 The shares offered at a discount necessity be of a class already issued i.e.,
the first issue cannot be at a discount.
 At least one year necessity have elapsed since the company became
entitled to commence issue. It means that in the first year of its working,
shares cannot be issued at a discount.
 The issue necessity be authorized through an ordinary resolution passed in
the common meeting of the company and this necessity be confirmed
through the Company Law Board.
Issue of share

 The resolution necessity specify the maximum rate of discount which in no

case shall exceed 10%. Though, a higher rate of discount may be allowed if
the Company Law Board agrees to a higher rate.
 The shares necessity be issued within two months after getting the sanction
of the Company Law Board or within such extended time as the Company
Law Board may allow.
 Every prospectus shall contain particulars of the discount allowed on the
issue of shares or so much of that discount as has not been written off on
the date of issue of the prospectus
ISSUE OF SHARES AT A PREMIUM
The amount of 'Share Premium Account' can be used only for the purposes
specified under Section 78 of the Act. These purposes are:
 Issue of fully paid bonus shares to the members of the Company.
 Writing off the preliminary expenses of the company.
 Writing off the expenses, commission paid or discount allowed on the issue
of the shares of the company.
 To give for the premium payable on the redemption of preference shares or
debentures of the company.
Call on shares &essentials of valid call
According to Section 36(2) of the Act, essentials of a valid call are as follows:
 Resolution of the board of directors
 Amount of call
 Similar class of shares (uniform foundation)
 Power to create a call (in benefits of company)
 Call should be made as per article of association
 Maximum amount per share(25%)
 Time duration between two calls.
 Notice of the call (at least fourteen days)