Allotment of Shares

• Allotment may be defined to mean the

appropriation by the Board of Directors of the
company out of the previously
unappropriated capital of the company of a
certain number of shares to persons who
have made applications for shares.

• Allotment results in a binding contract ,since

it amounts to acceptance of offer
 Allotment to be valid :

• should be made by proper authority, namely,

the board of directors or a committee
authorised by the Board.
• should be against application in writing,
• should not be in contravention of any other law
and
• must be made within a very reasonable time
and communicated to the applicant.
 Restrictions on Allotment
• Besides, an allotment to be valid must
comply with the provisions of -
• section 60 ( registration of prospectus on or
before the date of its publication ),
• section 69 ( application money to be not less
than 5% of the nominal amount of the share,
moneys to be kept deposited in separate bank
account, minimum subscription ),
• section 70 ( Statement in lieu of prospectus to
be filed at least three days before the allotment)
Restrictions on allotment (cont.)

• section 73 ( listing of shares on one or more

recognised stock exchange (s) and refund of
the moneys in case listing is refused, refund
of over-subscription within 78 days of the
closing of the issue).

• Minimum subscription of 90% is to be

received in case of public / right issue.
 Effect of irregular Allotment.
• Sec 60 default- Fine upto 50,000.
• Sec 69/70 default- allotment voidable
• Sec 73 default- allotment Void.

• RETURN AS TO ALLOTMENT.
 Buy back of Shares
• What is buy back ?
It is the offer of the company to the shareholders to
purchase their shares

Why buy back ?

-To Improve shareholder value
- As a defence mechanism
- Management signalling.
 A. Pre- conditions for buy- back.
• Authorised by the Articles.
• Upto 25% of the total paid-up capital and free
reserves.(net worth)
• Debt-net worth ratio is not more than 2:1 after
buy-back.
• Shares for buy-back are fully paid up.
• If the buy-back is for more than 10% of the paid-
up capital, a special resolution through postal
ballot has to be passed. For less than 10%, board
resolution will do.
 B. Restrictions for buy-back

• No buy back
• - through any subsidiary.
• -through any investment company.
• -if default subsists in int.payments etc…
• -non complaince of sec. 159,207,and 211.
 C. Sources of funds for buy-back [section
77A(1)

• Buy-back may be out-of

• (I) its free reserves
• (ii) the securities premium account
• (iii) the proceeds of any shares/securities

• Capital Redemption Reserves Account : If buy-back

is out of free reserves a sum equal to nominal value
of shares so purchased shall be transferred to
capital redemption reserves account Section 77AA
D. From whom can company purchase
its shares [section 77A(5)]

• The buy-back may be :

• (a) from existing securities holders on a
proportionate basis (tender method) or
• (b) from open market (through stock
exchange or book building process) or
• (c) from holders of odd lots of shares or
• (d) from employees pursuant to Employees
Stock Option Scheme (ESOS) / Sweat Equity.
E. Procedure of buy-back of
shares
• Before buy-back
1. The buy-back is authorised by its Articles
2. A special resolution is passed in
General Meeting authorising the buy-back
3. Details of buy back in notice of the meeting.
4 Declaration of solvency : to be filed in SEBI/ROC
5. Buy back to be completed within 12 months of
passing special resolution.
 F. Procedure after the buy back.

1 Verification and payment.

2 Extinguishment of securities
3. Public adv. of completion of buy-back. (Applicable to
a listed company).
4. Return of buy-back. to ROC, SEBI within 30 days
of such completion
5. Register of BUY-back.
6. Cooling period. Prohibition of new issue of shares within

24 months of buy-back (except bonus, conversions)

7. Penalty for default
 Calls on Shares.
• A call may be defined as a demand by the company for
payment of part of the issue price of shares or debentures
which has not been paid.

A call to be valid must be made by the directors duly appointed and

duly qualified; against a resolutions passed at the meeting of the
Board of directors

Besides, it must be made on uniform basis and bonafide in the

interest of the company.
-Notice of call must specify the exact amount and the time of
payment.
 Forfeiture of Shares.
• A company’s articles usually contain a provision to
forfeit shares of a member who fails to pay his calls
due. Forfeiture to be valid must be
• in accordance with the articles and
• against a proper notice,
• directors must pass a resolution forfeiting the shares bonafide in
the interest of the company.

• A forfeiture has the effect of termination of membership. However,

a person whose shares have been forfeited continues to remain
liable as a past member in case liquidation takes place within one
year forfeiture.
 Surrender of Shares
• A company may accept surrender of shares
as an alternative to forfeiture where its
articles so permit.
• However, surrender of shares shall be valid
only where their forfeiture is otherwise
justified.
• In any other circumstances, surrender of shares
cannot be accepted without sanction of the court
since it would amount to reduction of capital.
 Nomination of Shares/
debentures(Sec 109A)

• – The nomination should be made in

prescribed from No. 2B.
• The form should be signed by all holders and
should be dated. It should be signed by two
witnesses.
• Nominee may either register his name
or directly transfer the securities.