Shares and allotment

A share is nothing but a proportion. In the context of a Company, share may be defined as the proportion to which the shareholder is entitled in the profits of the Company while it is a going concern and in the return of the capital when the Company is wound up. Section 2(46) of Companies Act, 1956 define share as a share in the share capital of the company.

Shares come into existence on allotment. An allotment is the acceptance of an offer to take shares by an applicant. An acceptance to be valid should be communicated.

What is allotment is generally neither more or less than the acceptance  by the Company of the offer to take shares

Re. Florence Land & Public works Limited(1885)

Allotment and its communication result in a contract between the Company and the allottee. Mere allotment does not make the allottee a member of the Company. The membership will be established only when the name is placed on the register of members of the Company. The contract in respect of shares arises when the letter of offer is posted. The offeror becomes bound even if the letter of allotment is delayed in transit or even lost (Household Fire Insurance Company v. Grant).

Like any other offer, the offer to buy shares lapses, if the same is not accepted within a reasonable time (Ramsgate Victoria Hotel Company v. Monteflore, 1866). In this case, held that an interval of about six months between application and allotment was un reasonable.

Some important points

1.   Shares are movable goods under the Sale of Goods Act

2.   Under Section 82 of Companies Act, 1956, the shares or debentures or other interests of any member in a Company shall be movable property, transferable as provided by the Articles of Association of the Company.

3.   Proper authority should make the allotment. Allotment of shares made by an irregularly constituted Board of Directors shall be invalid (Changa Mal v. Provisional Bank,1914)

4.   The allotment should be absolute and unconditional.

5.   Allotment shall make against application only. Section 41 of Companies Act, 1956 requires that a person should agree in writing to become a member.

6.   Allotment should not be in contravention of any other law. Allotment to an application to a minor will be void.

7.   Company should file return of allotment with Registrar of Companies within 30 days in form 2.

8.   Re- issue of forfeited shares does not constitute allotment and the Company need not file any return in this regard.

9.   Allotment of shares by a Company as fully paid up shares to charitable trust by way of donation shall not be valid.

These are some general points regarding shares and allotment. Allotment in listed Companies are governed by SEBI rules and listing agreement.