Question

Explain the secretarial procedure involved in the allotment of shares.

Answer 1

Meaning: -
On receiving the applications, the company has to take the decision regarding the allotment of shares. The allotment of shares has been defined as “the appropriation (distribution) to an applicant, by a resolution of the Board of Directors of a certain number of shares in response to an application”.

In short, allotment means accepting the offer made by the investor to purchase the shares. The decision regarding allotment is taken by the Board of Directors. A procedure is to be followed to allow them in a particular manner.

Following are the Procedure of Allotment of shares:

1. Preparation of Application List: -
   After the last date for submission of share applications secretary collects the applications and verifies them. Irregular and incomplete forms are kept aside. Then the secretary prepares the application list
2. Appointment of Allotment Committee: -
   The power to allot shares is of the Board, but generally, a sub-committee of directors is appointed to look into the matter of allotment.

3. A decision about the basis of allotment: -
   Sub-committee prepares a report regarding the allotment. On the basis of the report, the Board of Directors finalise the policy of allotment.

   Generally, allotment is done by one of the following ways in  case of oversubscription:
   a) Lottery method: -shares can be allotted by lottery method by drawing lots. 

   b)Pro-rata method: -In this method shares are allotted to every applicant, but in proportion to the number of shares applied for.
4. Board Meeting: -
   Board is the proper authority to make the decision on allotment of shares. Therefore Board meeting is convened to consider the report of the allotment committees and to pass the resolution of allotment.
5. Nominee of SEBI: -
   After finalizing the policy at company level, the secretary has to inform SEBI to send a public representatives as a nominee of SEBI to finalize the policy of allotment. Representative is essential especially in the case of oversubscription. 
   

6. Signature of Chairman: -
   The secretary then makes entries in the allotment register by writing the number of shares allotted to each applicant. He takes the signature of the chairman on the list.

7. Sending Letter of Allotment or Regret Letter: - The secretary prepares the letter of allotment stating the particulars of the number of shares allotted, the amount payable on allotment, etc. the secretary prepares the letter of regret for those who have not been allotted the shares.

8. Receiving allotment money: -The secretary makes the necessary arrangements with the bank for collecting allotment money. 

9. Refund of excess application money: -
   When the company issues less number of shares then applied, the company has to return the excess money to the applicant.
10. Filling return of allotment: -
    The secretary prepares a return of allotment stating the necessary particulars as number of shares allotted, the face value of each share, names, and address of allottees, etc. 
11. Issuing Share Certificates: -
    The secretary prepares share certificate and issues them to the allottees within three months of the date of allotment. 
12. Preparation of Register of Members: -
    The secretary then prepares Register of Members and enters all the particulars regarding allotment in it. Then the allottees become members of the company.