Question

Answer in brief.

State the general principles/rules for allotment of shares.

Answer 1

Allotment of Shares means Company allots (to give) shares to the general public. Allotment means the distribution of shares among the applicants.

The general principles/rules for allotment of shares are as follows:

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 should not be in contravention (violation) of any other laws:
   - A Company cannot allot shares by violating or contradicting any other existing laws. For instance, Shares cannot be allotted to a minor.
   - But in the event of any such contravention, the company and every officer of the company who is in default shall be punishable with a fine which may extend to Rs. 5,000.
5. 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.
6. Reasonable time: The allotment must be made within a reasonable time. Otherwise, the applicant is not bound to accept it, i.e. 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.