Short Answer

Allotment of shares means the process by which a company gives shares to applicants who have applied for them. It is done after receiving applications for shares under the rules of the Companies Act, 2013.

When a company accepts an application and agrees to give shares, it is called allotment. It creates a legal relationship between the company and the applicant, making the applicant a shareholder of the company.

Detailed Explanation:

Allotment of Shares

Meaning of Allotment of Shares

Allotment of shares is the process of distributing shares to individuals who have applied for them. When a company invites the public to subscribe to its shares, interested people apply by submitting applications along with the required amount.

After receiving these applications, the company decides how many shares to give to each applicant. Once the company accepts an application and allocates shares, it is called allotment of shares.

In simple words, allotment means acceptance of the offer made by the applicant. This creates a contract between the company and the applicant.

Legal Rules of Allotment

The allotment of shares must follow certain rules under the Companies Act, 2013.

First, allotment must be made by a proper authority, usually the Board of Directors. They have the power to decide how shares will be distributed.

Second, allotment must be made within a reasonable time. If there is a long delay, the application may become invalid.

Third, the communication of allotment must be clear. The applicant must be informed that shares have been allotted.

Fourth, allotment must be absolute and unconditional. This means the company must clearly accept the application without any conditions.

Also, the company must ensure that the minimum subscription amount is received before making allotment. This ensures financial stability.

Procedure of Allotment

The process of allotment begins after the company receives applications for shares. These applications are reviewed carefully.

Then, the Board of Directors passes a resolution to allot shares. They decide how many shares each applicant will receive.

After that, letters of allotment are sent to applicants. These letters inform them about the number of shares allotted.

Finally, the names of shareholders are entered in the register of members. This completes the process of allotment.

Importance of Allotment

Allotment of shares is important because it creates a legal relationship between the company and the shareholder. The applicant becomes a member of the company after allotment.

It also helps the company raise capital. By allotting shares, the company collects funds needed for its business activities.

Allotment ensures proper distribution of shares among investors. It maintains fairness and transparency in the process.

It also gives rights to shareholders, such as voting rights and the right to receive dividends.

Effects of Irregular Allotment

If allotment is not done according to legal rules, it is called irregular allotment. Such allotment can be cancelled, and the company may face penalties.

Investors may also have the right to claim compensation if they suffer losses due to improper allotment.

Conclusion

Allotment of shares under the Companies Act, 2013 is the process of assigning shares to applicants. It creates a legal relationship between the company and shareholders and helps in raising capital. Proper allotment ensures fairness, transparency, and smooth functioning of the company.