There might be times when the structure of the Company may need to be changed, either by adding a new shareholder or by changing the existing proportion of shares between shareholders. When there are insufficient shares to allow for a transfer or it’s not ideal to distribute existing shares, new shares can be allotted. It is governed by Companies act, 2013.
Procedures to be followed for allotment of shares-
Issuing of the prospectus:
If the Company wants to raise funds the first step is to issue shares. Prospectus is a document that acts as an invitation for the Public to buy the Company’s shares. The company has to submit a copy of the prospectus to the SEBI whereas the private companies do not need to issue any prospectus. The prospectus of a company gives the information about the issuing company – names of Directors, terms of issue, opening and closing date of the share issue, application fees, bank details for deposit and minimum shares for application.
Receiving of Application:
After going through the prospectus of the company, interested investors can apply for shares along with the application fee. If the number of shares applied for is exceeding the number of shares issued, this is known as Over-subscription while if the number of application for the issue of share is less than expected then this is known as Under-Subscription. The amount paid for the application money must be at least 5 percent of the nominal amount of share.
Allotment of Shares
The decision of the allotment of shares is taken by the company. Allotment of shares to its shareholders is called Acceptance and is not possible until subscription. Minimum Subscription is the minimum amount stated in the prospectus that is required to run the Business. It is unlikely that all the applicants will receive the allotment letter. Some applicants receive regret letters and their application money is returned to them.
After Allotment of shares by the company, the shareholders have to pay the remaining amount due on shares according to the procedures mentioned in the prospectus.
The minimum subscription amount of 90 percent of the issue is to be achieved by the company in 60 days from the date of closure of the issue. In case if it is not met, the company will have to refund the entire subscription amount. There is a relaxation of 18 days. For any delay after 78 days, the company will have to pay an interest of 6 percent per annum as a penalty.
After the Acceptance of shares, the applicants become shareholders in the company.
If there is no such provision in the Articles, the following provisions shall apply:
- No call shall be for more than 25% of the nominal value of each share.
- Interval between any two calls should not be less than one month.
- At least 14 days’ notice must be given to each member for a call specifying the amount, date and place of payment.
- Call should be made on a uniform basis on the entire body of shareholders falling under the same class.