Procedure for the Allotment of Shares after Company Incorporation

Procedure for the Allotment of Shares after Company Incorporation

The issue of shares in a company is the process by which companies allot new shares to the shareholders. In accordance with the Companies Act, 2013, Companies issue shares to the shareholders.

Procedure for the Privately Placed Shares

·         A notice is sent to all the shareholders for convening the Extra Ordinary General Meeting for the approval of the private placement offer letter.

·         A private placement offer letter is being drafted.

·         Resolution is passed in the Extra Ordinary General Meeting (EGM)

·         Form MGT-14 is filed with ROC (Registrar of Companies) within 30 days of passing a special resolution in the meeting of shareholders.

·         An offer letter is issued in Prospectus and Allotment of Securities (PAS-4) within 30 days of passing Special resolution.

·         After this, a complete record of Private placement is prepared in Prospectus and Allotment of Securities( PAS-5).

·         Form PAS-4 and Form PAS-5 are filed with the ROC within 30 days of the issue of the offer letter in Form GNL-2.

·         Allotment of shares is made within 60 days of receipt of Money from the persons to whom the right was given.

·         A Board meeting for Allotment of shares is called.

·         PAS 3 is filed with ROC within 30 days of Allotment.

What are the Restrictions on the Allotment of Securities by the Public Listed Company?

There are certain restrictions on Allotment of shares as per the Companies Act[1] –

·         Minimum Subscription

According to Section 69(1) of the Companies Act, no allotment can be made by the company until the minimum Subscription has been received.

·         Application money

In accordance with Section 69(3), the amount payable on each share should not be less than 5 per cent of the Nominal Value of the shares.

·         Money to be deposited in a Scheduled Bank

According to Section 69(4), the Money received from the applicants must be deposited in Schedule Banks until the certificate of commencement of Business has been obtained.

·         Returns of Money

According to section 69(5), if the minimum Subscription has not been raised or the Allotment cannot be made within 120 days from the date of publication of the prospectus, the Director has to return the money received from the applicant.

·         Opening of the Subscription List

According to Section 72, no allotment can be made until the beginning of the 5th day after the publication of the prospectus or any time later as mentioned in the prospectus.

·         Rejection of Application

If any person gives public notice of withdrawal of the consent to the issue of the prospectus, any applicant can revoke this application.

DISCLAIMER: THE ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING INITIATIVE.

THE AUTHOR – CS DEEPAK SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND CAN BE REACHED AT CONTACTHHPRO@GMAIL.COM OR 9910248911.