A share is a share or a unit of ownership in a corporation, which confers on the shareholder voting rights in matters about the corporation and allows for the sharing of profits through proportionate dividends. The sale of shares helps raise capital to meet various operational needs of a company as well as to meet finance needs in the process of expanding business operations. An acquirer of share stocks becomes a shareholder, exercising some form of influence over the company.<\/p>\n
Section 2(84) of the Companies Act 2013 states that \u201cshare means a share in the share capital of a company<\/a> and includes a stock\u201d.<\/p>\n Share capital refers to the total money raised by a company while selling shares to investors. It is divided into two types: authorized share capital, which is how much a company can raise, and issued share capital, denoting the amount raised through the selling of shares in practice. Share capital is a fundamental component of an equity structure in a company because it forms the financial base for the organization, thereby financing its operations and promoting growth over the long term.<\/p>\n Allotment of shares refers to the procedure whereby a company<\/a> shall extend the right to a member to take shares after he has applied for them on a subscription offer. This procedure signifies that the company has accepted the application made for the shares and thus creates a binding contract between the company and the applicant. Section 42 of the Companies Act of 2013 governs the allotment of shares relating to capital formation. On allotment of shares, the applicant becomes a member and acquires property rights based on the shares\u2019 nature and conditions.<\/p>\n Modes of Share Allotment Under the Companies Act, 2013:<\/strong><\/p>\n It is important to note that the Board and shareholder approvals are mandatory. In case of such an allotment, a company would be interested in filing its allotment returns in Form PAS-3 with the ROC within 30 days of such an allotment. In particular types of issues, like private placement or preferential allotment, valuation reports become inevitable for ascertaining fair pricing. These provisions help the companies easily raise funds in a legal and regulatory environment.<\/p>\n Section 39 of the Companies Act 2013<\/a> deals with the allotment of companies\u2019 securities. Therefore, under this law, public companies, as well as the process of public offering shares, are in its impact. The seriousness of this law lies on the ground that it speaks about the allotment procedure of shares in public companies with a view to attaining standard regulation for all the allotment procedures. On the other hand, it also deals with transparency, investor protection, and regulatory compliance.<\/p>\n The first subsection has addressed the minimum subscription requirement. It indicates that a company cannot indulge in the allotment of shares except against receipt of the minimum amount of subscription as provided within the prospectus of such a company. Such a minimum amount of subscription would, on its part, provide to finance the relevant expenses including project costs as well as debt obligation. Where the minimum subscription is not raised within 30 days from the date of issue of the prospectus, the application money from the applicants shall be returned. This clause ensures that a company has funds for what it intends to do and protects investors from premature allotment in an otherwise illiquid venture.<\/p>\n The application money threshold is described in subsection (2). It provides that all applications for shares shall bear 5% of the nominal value of shares, or such other amount as the Securities and Exchange Board of India may determine from time to time, as application money in order to make applicants serious and deter all \u2018applications with no money in the game\u2019. The application money is, therefore, held in trust and cannot be used by the company until shares have been allotted.<\/p>\n Subsection (3) of section 39 specifically deals with the refund of application money. A company is liable to refund the application money in the following circumstances, inter alia: where shares are not allotted on account of insufficient subscription or for any other reason. The refund must be made within a given period, that is, within 15 days from the date of cause. If the refund is not made within this period, an obligation falls upon the corporation to pay interests at the rate of 15% per annum, reckoning from the end of the fifteen days until such refund is made. The provision is thus able to guarantee prompt payments and safeguard the applicants against financial losses.<\/p>\n Section 39(4) speaks to the Return of Allotment. The return of allotment in the prescribed format to ROC is filed by the company after the allotment of the shares. This complies with the said company\u2019s laws. The filing shall be made within a timeframe of 30 days following the allotment. Information required includes names of the allottees, number of allotted shares, and consideration so received against such shares. The legal requirement being breached will naturally attract fines on the entity as well as its officials.<\/p>\n Section 39(5) carrying Penalties for Breaches, any corporation and an officer dealing with the said provisions violating the same section would entail an infirm or defective corporation and may be liable towards punishment which comprises of fines along with various other regulatory activities as listed in the same act which means accountability towards strict compliances.<\/p>\n Section 39 of the Act leads to a systematic approach to share allotment to safeguard the interest of investors and protect a company\u2019s legal and financial obligations. This section provides full disclosure and accountability over shares by offering a minimum subscription, regulating application fees, and providing immediate refunds. It is the return of allotments that keeps the regulatory actors informed about accurate data on shareholder trends.<\/p>\n In short, Section 39 of the Corporations Act 2013 is an important provision that keeps the process of share allotment intact by balancing the interests of both corporations and shareholders and thus gaining the public\u2019s trust in capital markets.<\/p>\n Judicial Interventions have seen the allotment of shares scrutinized many times, laying down certain jurisprudential principles governing corporate law while safeguarding investors\u2019 interests. These are important judgments, such as accidents and accusations of truth and honesty in the share allocation process. The courts have noticed that the nature of share allocation needs to be statutorily regulated and given priority to shareholder rights in consonance with the purposes of the company. It declares any form of abuse or oppressive measure in share allotment illegal and provides for legal intervention. One of the landmark judgments, along with its facts, issue, and judgment regarding share allotment, is as follows:<\/p>\n Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. (1963 AIR 248)<\/strong><\/p>\n Facts<\/strong>: In Sri Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. (1963), the Calcutta Stock Exchange Association issued the shares in favor of a specific group of people, out of whom one was Sri Gopal Jalan & Co. The case arose when the company issued shares retrospectively. The contention put forward by Shree Gopal Jalan was that the allotment was invalid because it was made after the issuance of shares by the company and was even backdated to meet some statutory requirements.<\/p>\n Issue<\/strong>: In such a case, the issue at the center was the retrospective allotment of shares, which was permissible under the Companies Act 1956, wherein the Companies Act 2013 superseded it. This concern was merely about the validity of such backdated allotment of shares and whether such an act would amount to a statutory obligation and corporate governance principles as well.<\/p>\n Judgment<\/strong>: The court held that allotment of shares must follow proper procedures and cannot be made retroactive. The allotment will have effect only after the application form is received by the company as duly accepted and the applicant is given intimation of the allotment. Retrospective share allotments cannot be permitted because such procedures are against the principles of transparency and equity in corporate practices. Consequently, the retrospective allotment of shares was deemed invalid, reinforcing the necessity for adherence to proper procedural standards in share allotment practices.<\/p>\n The share allotment mechanism under the Companies Act 2013 is a well-arranged and legally governed process that guarantees transparency, fairness, and statutory compliance. The process begins with the company issuing a prospectus or offer document in the case of a public offering or an offer letter for private placements or rights issues. Thereafter, applications are collected along with the necessary application fees. The minimum subscription requirement will be fulfilled, proper valuation will be made where applicable, and necessary approvals will be obtained from the board and shareholders. The application receipt is what triggers the allotment process, whereupon the allotment is recorded in the company registers of members, and a return of allotment is filed with the Registrar of Companies in the prescribed Form PAS-3 at the required period.<\/p>\n Therefore, the structure secures respect for corporate governance<\/a> standards as well as investor protection from arbitrary and fraudulent issues of shares. Defaults of individual entities to comply with the regulation attract legal action, along with monetary fines against the organization and the officers managing those. So, share allotment is not only a monetary transaction but becomes an annexed regulatory process in its impact on the capital structure of the company, giving investors confidence and lending to general stability in capital markets.<\/p>\n Related Service<\/strong><\/p>\n A share is a share or a unit of ownership in a corporation, which confers on the shareholder voting rights in matters…<\/p>\n","protected":false},"author":25,"featured_media":34589,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[6827],"tags":[],"class_list":{"0":"post-34588","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-law-act"},"yoast_head":"\nWhat is the Allotment Of Shares?<\/h2>\n
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Section 39 of the Companies Act 2013<\/h2>\n
Landmark Judgments or Case Laws<\/h2>\n
Conclusion<\/h2>\n
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