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Allotment of Shares

What is the Allotment of Shares?

Allotment of shares refers to the process of creating and issuing new shares by the company to the new or existing shareholders in exchange for cash or otherwise to raise more capital. Typically, a company issues new shares to attract new investors and to make them a partner in the business. Private companies can allot new shares only after filling the "Return of Allotment of Shares". While public companies are free to allot new shares anytime but they also have to fill the "Return of Allotment of Shares" transaction within 14 days of allotment.

Allotment of Shares

Reasons for Allotment of Shares

Shares can be allotted for cash or consideration other than cash due to the following reasons:

  • Due to a written or oral contract.
  • Due to a provision in the constitution of the company.
  • In exchange for payment of dividends to a shareholder.

Features of Shares Allotted

  • Increase in Capital
    The company can easily raise further capital by allotting the additional shares.
  • Nature of Capital
    They do not impose the liability for repayment on the company because the capital is not debt in nature.

Process of Allotment of Shares

1. Confirm the Shareholdings and Shareholders' ID

Before allotting the shares, the company must have a look at the current shareholdings, shares that are going to be introduced, and the final shareholding structure. There are some details that are required to be collected while allotting the shares:

  • Name of the Allottee
  • Father's name of the Allottee
  • Full Address with PIN Code
  • of Shares to be Allotted
  • PAN Card copy of the Allottee
  • Aadhar Card Copy of the Allottee

2. Call and Convene a Board Meeting

The company needs to conduct a board meeting and get the permission of the Board of Directors regarding the allotment of shares. After collecting all the information in the first step, the company will ask for confirmation from the BoD after discussing the share structure. Detailed minutes of the board meeting are kept safe. These details are then presented to the company's house and also displayed to auditors as evidence.

3. Update Company's House with the New Allotment of Shares (SH01)

Within a month of any allotment, it is necessary to complete and deliver the statement of capital (SH01) form to Companies House. A company can easily complete this form on the official website of the Companies House. This form helps the companies in updating the new structure of the shares on the Companies House. There are no details related to the shareholders included in the form. If any company wants to make any changes or updates in the form then it can be done in the company's statement.

4. Issue New Share Certificates

The fourth step in this process is to issue new share certificates to the shareholders that include their details and the number of shares that are currently held by the shareholders. The previous share certificates get automatically canceled once a new share certificate is issued by the company.

5. Update the Company's Confirmation Statement (CS01) with the Totals of New Shares

The last step in the process of share allotment is updating the confirmation statement of the company with the Company's House so that the new structure of shares can be shown within the company. If the company has a new shareholder then it must be kept in mind that the SH01 form does not include the details of the new shareholder instead of it, the details are included in the confirmation statement of the company. If the company is planning to transfer newly allotted shares then this update can be done after completing the changes of all shares in the confirmation statement.

Other Forms of Allotment of Shares

IPO is not the only way for a company to make the allotment of shares. Allotment can also be done when a company offers new shares to the existing shareholders. Some other forms of allotment of shares are described below:

  • Employee Stock Options (ESOs)
    The company can allot the shares to its employee through ESOs. It is a form of compensation or gift that is offered by the companies to attract new employees and appreciate the existing employees. ESOs motivate the employees to do a better performance as well as it does not dilute the ownership of the shares.
  • Right Offerings or Right Issue
    This allocation of shares is done to the investors who are willing to purchase more rather than doing so automatically. Thus, it provides a right to the investors but not the obligation to purchase additional shares in the company. Some companies do the right issue to the shareholders of other companies that they want to acquire.

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