The issue of shares is the procedure where enterprises dispense new shares to the shareholders. Shareholders can be either corporate or individuals. The enterprise keeps the standards specified by Companies Act 2013 while circulating the shares. The Issue of Prospectus, Receiving Applications and Allocation of Shares are three key strides of the procedure of issuing the shares.
A recognizable feature of the company’s capital is that the amount of its shares can be progressively collected in basic installments that are spread over a time period depending upon its enhancing financial obligation. The first installment is collected with the application and is henceforth, called as application money, the second is on allotment (named as allotment or allocation of money), and the third installment is called a first call, second call and so forth. The last installment is known as the final installment.
The issue of shares can be either at par (i.e., at a value equal to the nominal value), or at premium (i.e., at a value more than the nominal value).
The various steps followed by the company during the process of issue of shares are given underneath:
- Issue of Prospectus: The enterprise at first issues the prospectus to the public generally. The prospectus is an appeal to the public that a new enterprise has come into the presence and it would require assets for operating the activities of the concern. It provides a detailed description about the nature and business of the company. It also includes total information with respect to the endeavor and the manner by which the money is to be collected from the prospective investors.
- Receipt of Applications: Once the prospectus is issued, it is circulated to the general public. Any prospective investors contemplating to join and buy in the share capital of the enterprise would make an application alongside the application money and deposit it with a scheduled bank as referenced in the prospectus. To proceed with the next step of allocation of shares, the company should receive the minimum subscription within a period of 120 days from the date on which the prospectus was first issued. If the condition of minimum subscription is not fulfilled, the application money so received is returned within 130 days of the date of issue of prospectus.
- Allotment/Allocation of Shares: When the minimum subscription has been received, the company can proceed to allot the share. Ordinarily, there is always oversubscription of shares, so the allotment is done on pro-rata ground. Letters of allotment are sent out to those individuals who have been allotted their part of shares. This results in a genuine agreement between the enterprise and the claimant, who will currently be a part-owner of the enterprise.
The issue of shares by a company is a three step process which starts with issue of prospectus, followed by receipt of applications and finally closed by allotment of the shares.