Allotment/Transfer of Shares

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Introduction

    Whenever the Company needs fund it either utilizes its reserves or issues and allots further shares to either existing shareholders or to the public.

    Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler.

   For a private company the section provides that a private company may issue securities :

  1. By way of rights issue or bonus issue in accordance with the provisions of this Act; or 
  2.  Through private placement by complying with the provisions of Part II Chapter III of the Act.

     A public company may issue any of the aforesaid securities by way of a public offer or rights/ bonus issue or private placement. Public Offer here includes Initial Public Offer (IPO) or Further Public Offer (FPO) of securities to the public by a company, or an offer for sale (OFS) of securities to the public by an existing shareholder, through issue of a prospectus.

What can be the reasons for issue and allotment of shares ?

Fund Requirements :

Whenever the Company requires fund for its projects, it issues shares to the public for subscription. the Companies can acquire huge amount of investment by public issues of shares without incurring heavy expenses and fixed financial charges.

Capitalization of Profits :

Few Companies might want to increase its share capital base so as to avoid unwanted hostile takeovers and also not to increase the share capital in the monetary terms than companies issue and allot Bonus shares. Bonus shares are issued to the existing shareholders only against the shares held by them in predetermined exchange ratio.

Right Shares :

Rights Issue is a subscription rights to buy additional securities in a company made only to the company’s existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital. With the issued rights, existing security-holders have the privilege to buy a specified number of new securities from the issuer at a specified price within a subscription period.

What are the modes of allotment of shares
in a Company ?

Shares can be issued in the following modes :

  1. Private Placement
  2. Allotment of shares towards debt i.e. conversion of debt into equity
  3. Subsequent Public Offers
  4. Initial Public Offers (IPOs)
  5. Bonus shares
  6. Rights Issue
  7. Preferential issues

What will you receive in issue and allotment of shares package ?

  1. Preparation of documents for issue and allotment of shares
  2. Shareholders’ Ordinary or Special Resolution
  3. Alteration of Memorandum of Association (MOA)
  4. Govt. Stamp duty payment
  5. List of Allottees

Process for issue and allotment of shares

Step 1

Board Resolution :

The Company has to firstly conduct the Board meeting to consider and discuss the authority given in the Articles of Association (AOA) of the Company to issue and allotment of shares or not. If no, then alter the AOA and then call the general meeting for further issue and allotment of shares.

Step 2

Passing of Ordinary or Special Resolution :

The Company will conduct General Meeting of the members and pass thereat an ordinary resolution for further issue and allotment of shares in the capital of the company and consequential changes to the Memorandum of Association.

Step 3

Filing of necessary forms:

Once the Ordinary Resolution for further issue and allotment of shares in the company is passed, the company will file forms MGT-14 for filing of resolutions and Form PAS-3 along with necessary documents for further issue and allotment of shares in company with the Registrar of Companies (ROC) through MCA portal.

Step 4

Approval of the ROC :

Upon receipt of the Forms of further issue and allotment of shares in the Company by the Registrar of Companies, and if it is satisfied with the forms filed and compliance made, he will process the forms and approve such issue and allotment of shares. Once the form is approved, the Master data of the Company will be updated on the MCA portal and also the approval email will be sent from the MCA office.

DOCUMENTS REQUIRED

Frequently Asked Questions (FAQ’s)

What is the allotment of shares?

Share issue and allotment is the process by which companies pass on new shares to shareholders, who may themselves be new or existing shareholders. With a share allotment, the shares are created and issued by the company to the people who become the company's shareholders.

How much time is needed for Allotment of Shares?

Allotment of Shares usually takes 2-3working days subject to the approval of the Central Govt. and the receipt of documents from the clients.

Will I get any proof or evidence for allotment of shares in the Company?

No. However, the Master Data of the Company on the MCA portal will be updated whenever the further Shares are issued and allotted the same can also be checked through this link at the field of Paid-up Share Capital of the Company;

What is the process for allotment of Shares?

Following are the ways for allotment of Shares :
• Issue and allotment of Bonus Shares (Known as capitalization of Profits)
• Issue and allotment of Right Shares only to the existing members of the Company
• Issue and allotment of Shares on a Private Placement basis or Preferential allotment
• Issue and allotment of Shares against any unsecured loans or borrowings or guarantees
• Issue and allotment of Shares pursuant to the exercise of option by the holder of debt security for conversion into Equity Shares
• Issue and allotment of Shares pursuant to the ESOP or ESOS
• Issue and allotment of Shares pursuant to any scheme of Merger or Amalgamation or takeover.