Allotment of Shares of a Company

Allotment of Shares

“Share” means a share in the share capital of a company and includes stock. The share capital of a company limited by shares shall be of two kinds, namely:— (a) equity share capital— (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and (b) preference share capital" -The Companies Act, 2013

Shares and Stocks are quite common and essential words in the financial world. Understanding them is very important in order to decipher the whole economic market. Talking about shares, in particular, they are nothing but Company's capital. The capital is divided into what we know as shares. These shares are sold to the public making them shareholders in the process. This is done in order to raise Company's capital.  There are two types of shares, namely, Equity shares and Preference shares. Equity shareholders are the one with power. Technically, they are the true owners of the Company and have many powers like voting rights. They share profits as well as the losses. However, preference shareholders are the one who has only one right that is, to share the dividends. They have no voting rights or any similar powers. The question now is that how this allotment of shares of Private Limited Company is done. The answer for the same is discussed below.

In order to sell shares, you need to come up with an offer. A written offer is drafted, mentioning all the terms and conditions (including all sort of benefits and liabilities). It should also mention the concise information of the company including its vision and details about the registered office and even the risk factors involved. Offers can be made in two particular ways; public offer and private placement offer. A private placement offer cannot be made to more than two hundred people in one financial year.

The offer is made by the directors of the company or is at least signed by them. The offer is to be passed as a special resolution at a General meeting. The second step after drafting the offer letter, therefore, will be to convene a general meeting by giving out an official notice seven days prior to the meeting. A copy of this offer is submitted to the registrar by filing form MGT-14. An offer letter is then issued in PAS-4 and PAS-5. Allotments are then made. A board meeting is called for this allotment. People who are deemed to be fit are made the shareholders.  After the allotment, the government is notified of it by filing PAS-3. Financial transactions are done via Company's bank accounts only. A certificate containing the main seal of the company is issued to the shareholders. This certificate acts as a major evidence of the fact that share is being held by a specific person or a company. Duplicates can be made but only by following the guidelines as mentioned in The Companies Act.

If a company decides to increase its share capital, according to The Companies Act, the first offer is made to the existing shareholders, employees, members and other persons authorized by passing of special resolutions. If the procedure laid out by The Companies Act is not followed properly, the penalty can be charged upon. Drafting an offer letter or documents like resolutions and filing all the forms can be a little overwhelming. We, at LegalRaasta, can help you with the whole process.