Question

Explain briefly the procedure for allotment of shares.

Answer 1

Allotment of shares means distributing shares to those applicants who have submitted a written application along with the application money.

Procedure for allotment of shares are as follows:

1. Appointment of Allotment Committee: When the subscription list is closed the secretary informs the Board of Directors to make preparations for allotment of shares. If the issue is par subscribed or under subscribed, the Board can do the allotment of shares. But if the issue is oversubscribed, the Board must appoint an Allotment Committee to undertake allotment. The Allotment Committee will decide the basis of allotment and submit a report to the Board.
2. Hold Board Meeting to Decide the Basis of Allotment: Board Meeting is held to approve the allotment formula suggested by the Allotment Committee. A representative of SEBI is also present when the allotment committee prepares the allotment formula. If the shares are listed, the formula has to be also approved by the authorities of the concerned stock exchange.
   Once the allotment formula is approved, the application and allotment list is made. This list contains the names of the allottees i.e. the applicants who will be allotted shares. The list has to be signed by the Chairman and Secretary.
3. Pass Board Resolution for Allotment: At the board meeting, a resolution is passed to allot shares. The resolution also authorises the Secretary to issue letters of allotment and letters of regret.
   Secretary has to send Letter of Allotment to allottees i.e. those applicants whose names appear in the application and allotment list. Secretary has to send Letter of Regret to those applicants to whom no shares have been issued. Along with the letter of regret, the application money is also refunded.
4. Collection of Allotment Money: The letter of allotment states the money to be paid by the applicant on allotment of shares. The money has to be paid in the Bank specified by the company within the stipulated time. For all public issues and Rights Issue (from Jan. 2016) ASBA is mandatory.
5. Arrangement Relating to Letters of Renunciation: An applicant who has been allotted shares can renounce the shares in favour of another person. The applicant has to fill up a form for renunciation and submit it with the original copy of the letter of allotment to the company. After approval from the Board, Secretary enters the name of the new allottees in the application and allotment list.
6. Arrangement Relating to Splitting of Allotment Letters: Sometimes, the applicant who has been allotted shares can request for splitting of allotment letters. Splitting means putting the shares in one or more name. After getting the approval of the Board for the splitting, Secretary enters the details of the split in the list of split allotments. Secretary has to also issue split letters.
7. File Return of Allotment: Secretary has to file a ‘Return of Allotment’ with the Registrar of companies within 30 days of allotment of shares. The return of allotment contains details of allotment of shares including the names and addresses of allottees, value of shares allotted, amount paid or payable on each shares, etc.
8. Prepare Register of Members and Issue Share Certificate: Secretary has to enter the names of all those applicants who have paid the allotment money in the Register of Members. Secretary also has to prepare the Share Certificates and distribute it to all the members within two months of allotment of shares. In case of shares held in electronic form (dematerialised), the entries of applicants are made by the Depository.