Question

Justify the following statement.

Company has to fulfill general principles/rules for allotment of shares.

Answer 1

Justification:
The following are the general principles/rules for allotment of shares.

1. Communication: The decision regarding allotment must be communicated to the applicants. It means the company should inform the investors in writing and then share the applicant and the company enters into a contract.
2. Absolute and unconditional: The allotment must be absolute and unconditional, i.e, it must be made on the same terms as stated in the application, No change in the terms of allotment or new conditions can be added at the time of allotment.
3. Proper authority: The allotment should be made by proper authority, i.e, Board of Directors of the company, or authorized committee on behalf of the Board of Directors. An allotment made without proper authority will be invalid.
4. Allotment against applications only: A company can allot shares only if it has received a written application for shares from the applicant. Thus, no valid allotment can be made on oral requests. It must be against written application only.
5. Reasonable time:
   - The allotment must be made within a reasonable time. Otherwise, the applicant is not bound to accept it, i.e, the applicant can reject it.
   - As per the Act, allotment shall be done within 60 days of receipt of application money. The allotment can be made from the fifth day from date of the issue of prospectus. Thus, it is rightly justified that, the company has to fulfill general principles/rules for allotment of shares.