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    Basics of Share Allotement

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    shreerajpillai
    The document defines key terms related to shares and share allotment under Indian company law: 1. Allotment refers to the appropriation of unappropriated capital of a company and assigning shares to persons. A share certificate provides evidence of share ownership. Shares can be transferred through the prescribed process. 2. A register of members contains details of shareholders and their shareholdings. Stock refers to fully paid shares merged into equal value funds that can be divided into fractions. 3. A company must receive minimum subscription before allotment when offering shares to the public. A certificate of commencement of business is required before a public company can begin operations.

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    Basics of Share Allotement

    Uploaded by

    shreerajpillai
    37 views3 pages
    The document defines key terms related to shares and share allotment under Indian company law: 1. Allotment refers to the appropriation of unappropriated capital of a company and assigning shares to persons. A share certificate provides evidence of share ownership. Shares can be transferred through the prescribed process. 2. A register of members contains details of shareholders and their shareholdings. Stock refers to fully paid shares merged into equal value funds that can be divided into fractions. 3. A company must receive minimum subscription before allotment when offering shares to the public. A certificate of commencement of business is required before a public company can begin operations.

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    The document defines key terms related to shares and share allotment under Indian company law: 1. Allotment refers to the appropriation of unappropriated capital of a company and assigning shares to persons. A share certificate provides evidence of share ownership. Shares can be transferred through the prescribed process. 2. A register of members contains details of shareholders and their shareholdings. Stock refers to fully paid shares merged into equal value funds that can be divided into fractions. 3. A company must receive minimum subscription before allotment when offering shares to the public. A certificate of commencement of business is required before a public company can begin operations.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    37 views3 pages

    Basics of Share Allotement

    Uploaded by

    shreerajpillai
    The document defines key terms related to shares and share allotment under Indian company law: 1. Allotment refers to the appropriation of unappropriated capital of a company and assigning shares to persons. A share certificate provides evidence of share ownership. Shares can be transferred through the prescribed process. 2. A register of members contains details of shareholders and their shareholdings. Stock refers to fully paid shares merged into equal value funds that can be divided into fractions. 3. A company must receive minimum subscription before allotment when offering shares to the public. A certificate of commencement of business is required before a public company can begin operations.

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    Share allotment and related matters:-

    What is meant by allotment of shares?


    The Supreme Court in Sri Gopal Jalan and Co. Vs. Calcutta Stock Exchange Association Ltd. (AIR 1964 S.C.250)
    defined allotment as “the appropriation out of the previously UNAPPROPRIATED capital of the company of
    a certain number of shares to a person”.
    Offer for shares are made on application forms supplied by the company. When an application form is accepted,
    it amounts to an allotment. The term allotment is not defined under the Companies Act. It means and implies a
    division of the share capital into defined shares of a particular value or or of different classes and assignment of
    such shares to different persons.

    What is a share?
    A ‘share’ means a share in the capital of the company. Section 82 of the Companies Act, 1956 describes share as
    A movable property, transferable in the manner provided by the articles of the company.

    What is a share certificate?


    Section 84 of the Company’s Act, 1956 describes a “share certificate” to mean a certificate under the Common
    Seal of the company, specifying any shares held by any member. A share certificate shall be prima facie evidence
    of title of the member to such shares.

    What is meant by transfer of shares?


    Shares, for which shares certificates are issued, can be transferred by making an application in the prescribed form
    signed by the transferor(the shareholder in whose name the share is registered in the Register of members) and
    the transferee, duly stamped according to the Indian stamp Act and delivering it at the Registered office of the
    company. Once the share transfer application is approved by the Board of directors of the company, the share
    transfer will be effected by making necessary changes in the Register of members, by issuing the share certificate
    to the transferee after noting the name of the transferee as the shareholder.
    As stated above, according to Section 82 of the Companies Act,1956, the shares(or debentures) or other interest of
    any member in a company shall be movable property, transferable in the manner provided by the Articles of
    Association of the Company. Thus, the provisions applicable for transfer of shares are applicable for transfer
    of debentures also.

    What is meant by transmission of shares?


    When a shareholder dies, the process by which his legal heirs or the beneficiary of the will become the shareholder
    is known as transmission of shares.

    What is a share warrant?


    A public company limited by shares, if so authorized by its Articles of Association, may with the previous approval
    of the Central Govt., in respect of FULLY PAID UP shares, issue under its COMMON SEAL, a Warrant stating that
    “the bearer of the warrant is entitled to the shares therein specified.” For the payment of future dividends on the
    shares specified, coupons may be provided alongwith the warrants. A share warrant may entitle the bearer of the
    warrant to the shares specified therein and the shares may be transferred by the delivery of the warrant.
    A share warrant holder cannot be a member of the company. Once a share warrant is issued, the name of the
    shareholder whose shares were converted as share warrants will be removed from the Register of Members and a
    noting will be made that so many shares numbering from______ to _______are converted into warrants.

    What is a register of Members?


    Every Company shall keep at its Registered office a Register of Members containing details as to the name, address
    and occupation of each member, his occupation, the number of shares held by him, the date of which each person
    was entered as a member and the date when he ceases to be a member. In case the number of members is more
    than fifty, the company has also to keep an Index of members.

    What is a Stock?
    Stock is the aggregate of FULLY PAID shares of a member merged in to one fund of equal value. The stock is
    expressed in terms on “money” and not as “so many shares”. Stock can be divided into FRACTIONS of any amount
    and such fractions (which bear no distinctive numbers like shares) may be transferred like shares.
    A Company cannot make an ORIGINAL ISSUE of stock. Section 94(1)(c) of the Companies Act, provides that’ a
    Company limited by shares may, if authorized by its Articles of Association, by a resolution passed in the general
    meeting, convert all or any of its fully paid up shares into stock. On conversion in to Stock as above, the Register of
    members must show the amount of Stock held by each member instead of the number of shares and the conversion
    does not affect the rights of members in any way.

    Some legal points on allotment of shares:-


    -Prohibition of allotment of shares unless minimum subscription is received, in cases where shares are offered
    to public for subscription. The Companies Act has not fixed any amount of Minimum Subscription(M.S). Section
    69(1) of the companies Act only provides that M.S. is the minimum amount which, according to the Board of
    Directors, should be raised by the issue of share capital in order TO PROVIDE FOR THE MATTERS SPECIFIED IN
    SCHEDULE II, CLAUSE 5 of the Companies Act, such as 1) purchase price of any property to be paid partly or wholly
    out of the proceeds of the issue, preliminary expenses and working capital.
    What is the object of providing for minimum subscription?
    The object of the provision of M.S. is to prevent the company getting under way until it has raised the capital
    needed to carryout the objects in which it has invited the public to participate.
    As per SEBI guidelines, a company making any public issue of share, debentures etc., must receive a Minimum
    subscription of not less than 90% of whole issue offered to the public, before making an allotment of shares or
    debentures to the public.
    - In ascertaining the Minimum Subscription amount , the amount “PAYABLE OTHERWISE THAN IN CASH” should
    be EXCLUDED. Amount ‘payable otherwise than in cash’ means a situation where shares are allotted to promoters,
    an expert, a patent provider etc., as a remuneration/compensation for their contribution and no actual cash is
    received against the allotment these shares.
    - On the subscribed amount as above, the application money has been paid to or received by the company in cash
    or by cheque.
    - The application money must not be less than five(5) percent of the nominal value . (ie in case of a share with the
    nominal value of Rs.10/-, the application money should not be less than paise 50)
    -All moneys received on application shall be deposited and kept deposited in a scheduled bank TILL
    i) Certificate of Commencement of Business(ccob) is obtained under S.149
    or
    ii) Where such Certificate(ccob) has already been obtained, till the entire amount payable on
    on application for shares IN RESPECT OF THE MINIMUM SUBSCRIPTION has been receive
    by the company.
    -In any allotment of shares, subsequent to the first allotment of shares offered to the public for subscription,
    M.S does not apply. However, in case of LISTED COMPANIES, SEBI Guidelines provide for M.S even
    for subsequent share issues, whether RIGHTS ISSUE OR PUBLIC ISSUE.

    What is a Certificate of Commencement of Business(ccob)?


    It is a certificate to be obtained by a public limited company from the Registrar of Companies(ROC)
    before commencing the business.
    A Public limited company raises capital from the public either by a public
    issue through an IPO(initial public offer) or through a Private placement where shares are issued to known
    persons and capital received from them. If an offer of share is made to 50 persons or more, it is a public issue
    and if shares are issued to less than 50 persons, it is a private placement.

    In case of a company making a public issue, ROC will issue a ccob if it receives a duly verified declaration from a
    director or the Company secretary of the company or if the company does not have a company secretary, from a
    Practising company secretary verifying that
    a)shares payable in cash is allotted up to MS
    b)every director has paid application and allotment money on shares contracted to be taken by them and
    c)no money is refundable due to non application or non obtaining of permission for shares to be listed in
    any recognized stock exchange.
    In case where a company is not making a public issue but allotting shares through a private placement, the ROC
    will issue a ccob on verification that
    a) a Statement in lieu of prospectus is filed with the ROC and
    b) that the directors have paid application and allotment money on the shares contracted to be taken by
    them.

    What is a debenture?
    The term debenture, simply means a document acknowledging a loan made to the company and providing for the
    payment of interest on the sum borrowed until the debenture is redeemed or taken back on repayment of the
    principal sum.
    The Characteristic features of a debenture are as follows:-
    1) It is a movable property.
    2) It is issued by the Company and is in the form of a certificate of indebtedness.
    3) It usually specifies the date of redemption. It also provides for the repayment of principal and
    interest at specified date or dates.
    4) It generally creates a charge on the undertaking or undertakings of the company.

    What is the time period within which a share certificate or debenture certificate has to be issued?
    The time period within which the share or debenture certificate is to be issued is provided under S.113 of the
    Companies Act, 1956. Every company shall(unless prohibited by any law or order of the court etc.,)within three
    months after the allotment of shares/debenture and within three months after the application for the registration
    of the transfer of any such shares, debentures, deliver the certificates of all shares or debentures allotted or
    transferred.
    However, in case of debentures(only debentures and NOT shares), on an application by the Company, the Company
    law Board may extend the period for delivery of the certificate to a further period not exceeding nine months.
    In case of default in issuing the share/debenture certificate as above, the company and every officer of the
    company in default shall be punishable with fine which may extend to Rs.5,000/- FOR EVERY DAY DURING WHICH
    THE DEFAULT CONTINUES.

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