Allotment of Shares

Overview of Allotment of Shares

Allotment of shares is the formal corporate process through which a company issues shares to investors, promoters, employees, or existing shareholders. It determines ownership, control, and economic rights within the company.

• Defines ownership structure and voting rights
• Helps companies raise capital without debt
• Creates legal shareholder rights and obligations
• Regulated under the Companies Act, 2013

Since share allotment directly impacts valuation, governance, and control, strict statutory compliance is mandatory to avoid penalties or invalid allotments.

Legal Framework Governing Share Allotment

• Companies Act, 2013
• Companies (Share Capital & Debentures) Rules, 2014
• SEBI Regulations (for listed companies)
• Mandatory ROC filings & statutory registers

These laws ensure transparency, fair pricing, investor protection, and strong corporate governance.

Eligibility Criteria for Share Allotment

• Company must have sufficient authorised share capital
• Board approval is mandatory
• Shareholder approval required for specific allotments

Company-wise Eligibility

• Private Limited: Restricted allotment, no public invitation
• Public Limited: Can issue shares publicly or privately
• Listed Companies: SEBI compliance mandatory
• OPC: Single shareholder, limited allotment scope
• Section 8: Generally no share capital

Types of Allotment of Shares

• Allotment at Incorporation
• Private Placement
• Preferential Allotment
• Rights Issue
• Bonus Issue
• Public Issue (IPO / FPO)
• ESOP Allotment
• Sweat Equity Shares

Each type serves different objectives such as fundraising, employee retention, ownership restructuring, or rewarding shareholders.

Advantages of Allotment of Shares

• Raises capital without increasing debt
• Improves company valuation and net worth
• Diversifies ownership base
• Enhances investor and lender confidence
• Motivates employees through ESOPs

Statutory Requirements for Share Allotment

• Sufficient authorised share capital
• Board & shareholder approvals (as applicable)
• Valuation report from registered valuer
• Filing of Form PAS-3 within 30 days
• Updating Register of Members
• SEBI compliance for listed companies

Documents Required for Share Allotment

• Board resolution approving allotment
• Shareholder resolution (if applicable)
• Application forms from allottees
• Valuation report
• Bank proof of share subscription
• Form PAS-3 with ROC
• Share certificates & stamp duty proof

Process of Allotment of Shares

• Check authorised share capital
• Conduct Board Meeting
• Obtain shareholder approval (if required)
• Issue offer letters
• Receive application money
• Pass allotment resolution
• File PAS-3 with ROC
• Issue share certificates

Challenges in Share Allotment

• Delayed ROC filings and penalties
• Valuation disputes
• SEBI scrutiny for public companies
• Errors in statutory registers
• State-wise stamp duty variations
• Risk of invalid or fraudulent allotments

FAQs on Allotment of Shares