PROCEDURE FOR ISSUE

AND ALLOTMENT OF
SHARES
SUBMITTED TO - PROF. RAJINDER MISHRA
PRESENTED BY - VRINDA GUPTA (59)

SHARES
The Capital of the company is divided
into no. of indivisible units called
shares
Sec 2(46) of THE COMPANIES
ACT,1956:
A share is an unit in the share capital
of a Company.

TYPES OF SHARES

EQUITY SHARES
Equity shareholders are the owners of the
company .The dividends of equity shares
are not fixed. It depends on the profits of
the company. Equity shareholders are paid
only after all other claims have been met.
Equity shareholders usually have voting
rights.

PREFERENCE SHARES
Preference shareholders are entitled to
fixed % of dividends before any equity
shareholders are paid. The Preference
shareholders have no voting rights.

DIFFERENT KINDS OF ISSUES

Primarily, issues made by an Indian company can
be classified as Public, Rights, Bonus and Private
Placement. While right issues by a listed company
and public issues involve a detailed procedure,
bonus issues and private placements are
relatively simpler. The classification of issues is as
illustrated below:
(a) Public issue
(c) Bonus issue
placement

(b) Rights issue

(d) Private

PUBLIC ISSUE
When an issue / offer of securities is made to new investors
for becoming part of

shareholders family of the issuer it

is called a public issue. Public issue can be further classified

into Initial public offer (IPO) and Further public offer (FPO).

Initial

public offer (IPO): When an unlisted company

makes either a fresh issue of securities or offers its existing

securities for sale or both for the first time to the public, it is
called an IPO. This paves way for listing and trading of the
issuers securities in the Stock Exchanges.

Further

public offer (FPO) or

Follow on offer: When an
already listed company makes
either a fresh issue of securities
to the public or an offer for sale
to the public , it is called a FPO.

RIGHTS ISSUE
When an issue of securities is made
by an issuer to its shareholders
existing as on a particular date fixed
by the issuer (i.e. record date), it is
called an rights issue. The rights are
offered in a particular ratio to the
number of securities held as on the
record date.

BONUS ISSUE
When an issuer makes an issue of
securities to its existing shareholders
as on a record date, without any
consideration from them, it is called
a bonus issue. The share are issued
out of the Companys free reserve or
share premium account in a
particular ratio to the number of
securities held on a record date.

PRIVATE PLACEMENT
When an issuer makes an issue of
securities to a select group of
persons not exceeding 49, and which
is neither a rights issue nor a public
issue, it is called a private placement .

PRICING OF AN ISSUE
Indian primary market ushered in an era of free
pricing in 1992. SEBI does not play any role in price
fixation. The issuer in consultation with the merchant
banker on the basis of market demand decides the
price. The offer document contains full disclosures of
the parameters which are taken in to account by
merchant Banker and the issuer for deciding the
price. The Parameters include EPS, PE multiple, return
on net worth and comparison of these parameters
with peer group companies

MODES OF ISSUE OF SHARES

A company can issue shares in two ways:
1. For cash.
2. For consideration other than cash.
Issue of shares for cash: When the shares
are issued by the company in consideration for
cash such issue of shares is known as issue of
share for cash. In such a case shares can be
issued in following ways.
at par
at a premium
at a discount.

Issue of shares at par: Shares are said to be issued at

par when they are issued at a price equal to the face
value. For example, if a share of Rs. 10 is issued at Rs. 10,
it is said that the share has been issued at par.

Issue of shares at premium: When shares are issued at

an amount more than the face value of share, they are
said to be issued at premium. For example, if a share of
Rs. 10 is issued at Rs. 15; such a condition of issue is
known as issue of shares at premium. The difference
between the issue price and the face value [i.e. Rs. 5
(Rs.15 Rs.10)] of the shares is called premium.

Issue of shares at discount: Shares are said to be

issued at a discount when they are issued at a price lower
than the face value. For example if a share of Rs. 10 is
issued at Rs. 9, it is said that the share has been issued at
discount. The excess of the face value over the issue price
[i.e. Re.1 (Rs. 10 Rs. 9)] is called as the amount of
discount.

PROCEDURE IN
ISSUE OF SHARES
1.
2.
3.
4.

Issue of prospectus
To receive application
Allotment of shares
To make calls on shares

STEP-1 ISSUE OF
PROSPECTUS
When a Public company intends to raise capital by
issuing its shares to the public, it invites the public to
make an offer to buy its shares through a document
called Prospectus.
According to Section 60 (1), a copy of prospectus is
required to be delivered to the Registrar for
registration on or before the date of publication
thereof. It contains the brief information about the
company, its past record and of the project for which
company is issuing share. It also includes the opening
date and the closing date of the issue, amount
payable with application, at the time of allotment and
on calls, name of the bank in which the application
money will be deposited, minimum number of shares
for which application will be accepted, etc .

STEP-2 TO RECEIVE
APPLICATION
After reading the prospectus if
the public is satisfied then they
can apply to the company for
purchase of its shares on a
printed prescribed form. Each
application form along with
application money must be
deposited by the public in a
schedule bank and get a receipt
for the same. The amount

STEP -3 ALLOTMENT OF
SHARES
Allotment of shares means acceptance by
the company of the offer made by the
applicants to take up the shares applied for.
The information of allotment is given to the
shareholders by a letter known as Allotment
Letter, informing the amount to be called at
the time of allotment and the date fixed for
payment of such money. It is on allotment
that share come into existence.

STEP 4- TO MAKE CALLS ON

SHARES

The remaining amount left after application and

allotment money due from shareholders may be
demanded in one or more parts which are termed
as First Call and Second Call and so on.

A word Final word is added to the last call. The

amount of call must not exceed 25% of the
nominal value of the shares and at least 1 month
have elapsed since the date which was fixed for
the payment of the last preceding call, for which at
least 14 days notice specifying the time and place
must be given.

INTERMEDIARIES INVOLVED
IN THE ISSUE PROCESS

Merchant Banker: Merchant banker does the due

diligence to prepare the offer document which
contains all the details about the company. They
are also responsible for ensuring compliance with
the legal formalities in the entire issue process and
for marketing of the issue.

Registrars to the Issue: They are involved in

finalizing
the basis of allotment in an issue
and for sending refunds, allotment etc.

Bankers to the Issue: The Bankers to the Issue

enable the movement of funds in the issue
process and therefore enable the registrars to
finalize the basis of allotment by making clear funds
status available to the Registrars.

Underwriters: Underwriters
are intermediaries who
undertake to subscribe to the
securities offered by the
company in case these are not
fully subscribed by the public, in
case of an underwritten issue

Allotment of shares
Allotment is the acceptance by the
company of that offer which is made by
the applicant
Allotment result in a binding contract
between the company and the
applicant

PROVISION REGARDING
ALLOTMENT OF SHARES

General provision regarding

allotment

Special

provision regarding
allotment

GENERAL PRINCIPLES
REGARDING ALLOTMENT
General

authority
Absolute and unconditional
Within reasonable time
Must be communicated
Revocation of the offer

PROPER AUTHORITY

The allotment must be made by

proper authority in accordance
with the provision of articles of
the company
In other words , it must be
made by a resolution of the
board of directors of the
company

ABSOLUTE AND
UNCONDITIONAL

The allotment must be absolute and

unconditional
Eg:
S wrote to a hotel company offering to take
300 shares if the contract for renovation of
the hotel was given to him. The company
accepted his offer and the shares were
alloted to him. The contract for renovation
was not given to S. The hotel company
before entering into the contract with s
went into liquidation. It was held that s was
not liable as his offer was conditional

WITHIN REASONABLE
TIME
An
application for shares must be
accepted within a reasonable time
Eg :
X applied for shares on June 28.
Shares were alloted on Nov 23. X
refused to take them. It was held
that offer had lapsed and X was
not liable to pay for them

MUST
BE
The
allotment
must be communicated
to the person making the application so
COMMUNICATED
that it is legally completed.
Eg:
G applied for some shares in a
company. He sent the application by
post. A letter of allotment was
despatched by the company soon after.
But the letter never reached G. It was
held that G was liable as a shareholder
in a company

An application for shares

be OFFER
REVOCATION
OF can
THE
revoked at any time before acceptance
is communicated
Eg:
H applied for shares in a company.
Shares were alloted to him. The letter of
allotment was sent to the companys
agent to deliver by hand to H. Before
the letter was delivered H withdrew his
application. It was held that there was
no allotment

SPECIAL PROVISION
The companies Act 1956 prescribes the
following restriction regarding the allotment of
shares to public companies. The special
provision of law of contract relating to
allotment of shares are :
Registration of prospectus
Minimum subscription
Application money
Money to be deposited in scheduled bank
Statement in lieu of prospectus
Permission of the stock exchange

REGISTRATION & ISSUE

OF PROSPECTUS
Under Sec 60(1) of the companies Act ,
no prospectus can be issue by a
company to the public untill a copy of it
has been for registered with the registrar
No allotment can be made on any shares
of a company until the beginning of the
5th day after on which the prospectus is
first so issued or such later time, if
any ,as may as specified in the
prospectus

MINIMUM
Sec 69 of the act provides that no allotment
which are offered to the public for subscription
SUBSCRIPTION
can be alloted unless:
The

amount stated in the prospectus as the

minimum amount has been subscribed, &
and the amount payable on application has
been received in cash by the company
The minimum subscription must be received
within 120 days of first issue of prospectus.
Otherwise ,all money received from the
applicants shall be repaid without interest
within next 10 days
Schedule 11 : if minimum subscription is not
received within 90 days of closure of the
issue ,money received from the aplicant shall
be refunded

APPLICATION MONEY
Under Sec 69(3), the amount
payable on application on each
share shall not be less than 5 %
of the nominal value

MONEY TO BE DEPOSITED
IN SCHEDULED BANK
The application money received by the
company shall be kept in a separate bank
account maintained with a scheduled bank
The money so received by the company
shall not be withdrawn from the separate
bank account untill
I.
The entire amount payable on
application for shares in respect of
minimum subscription is received by the
company
II. Allotment upto minimum subscription is
made by the company

STATEMENT IN LIEU
OF PROSPECTUS
Sec 70 states as a company having a
share capital which does not issue on
prospectus , shall not allot any of its
shares unless a statement in lieu of
prospectus has been filed with the
registration of atleast 3 days before
the first allotment of shares.

PERMISSION OF THE
When
the shares
are offered to the
STOCK
EXCHANGE

public the company shall make an

application to one or more recognised
stock exchange for obtaining permission
for the shares to be dealt with in such
stock exchange(s). If permission is not
given by any of the stock exchange
within 10 weeks from the date of closure
of the subscription list the allotment
shall be void .

THANK
YOU