Question

Answer the following question: Explain the procedure for allotment of shares.

Hint:

The allotment procedure is a formal process that moves from accepting applications to finalizing who gets shares, officially recording it with the ROC, and communicating the decision to all applicants. The key principles are fairness, transparency, and legal compliance.

Answer 1

Allotment of shares is the process by which a company distributes its new shares to applicants. It is a formal acceptance of the offer made by applicants to buy shares. The procedure for allotment is governed by the Companies Act, 2013, and SEBI regulations, and involves the following steps:

Appointment of Allotment Committee: The Board of Directors constitutes a Share Allotment Committee, which consists of some directors and company officials. This committee is delegated the power to supervise the entire allotment process and ensure it is fair and transparent.
Decide the Basis of Allotment: The committee, in consultation with merchant bankers and stock exchange representatives, decides the formula or basis for allotting shares, especially in the case of oversubscription. The goal is to ensure a fair and equitable distribution among different categories of investors (Retail, HNI, Institutional).
Board Meeting to Finalize Allotment: A Board Meeting is convened to approve the allotment formula recommended by the committee. A resolution is passed to allot shares to the successful applicants as per the finalized list.
Filing Return of Allotment: Within 30 days of allotment, the company must file a 'Return of Allotment' in Form PAS-3 with the Registrar of Companies (ROC). This return contains details of the allottees, the number of shares allotted to each, and the amount paid.
Dispatch of Letters: After the allotment is finalized, the company sends out communication to all applicants.

Letter of Allotment: Sent to successful applicants, informing them about the number of shares allotted and the amount of allotment money to be paid.
Letter of Regret: Sent to unsuccessful applicants, along with a refund of their application money.

Credit of Shares to Demat Account: In modern practice, for public issues, the allotted shares are directly credited to the Demat accounts of the successful allottees instead of issuing physical share certificates.
Collection of Allotment Money: The company then makes a call for the allotment money due from the allottees. A separate bank account is used for this purpose.