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Unit 1: Share Capital – Issue of Shares

Notes

Notes A printed application form is attached with the prospectus. After reading the
prospectus, the public fills up the application form for shares and submits it with application
money mentioned in the prospectus. As per Section 63 Less or Profit (3) the application
money must not be less than 5% of the nominal value of the share. An application for
shares without application money is not a valid offer and therefore, shares cannot be
allotted to such an applicant. The company is permitted to ask the applicant to pay the full
value on application or partly on application and the balance on allotment, or it may also
collect the amount by providing the calls after allotment to suit the convenience of the
applicant.

Procedure for Receipt of Application Money

The names of bankers to the issue are given in the application form. The investor applying for
shares must fill the application form and remit the application money by cheque, draft or stock
invest to the banker to the issue. The banker of the company presents the cheques and drafts
immediately and amount is kept in a separate account. In the case of stock invests which are
recently issued by the bankers against customers accounts after noting the lien, the company
encashes the stock invests of only those applicants to whom the allotment is made. The balance
of applicant’s account is not reduced until allotment and the applicant continues to earn interest.
In case of unsuccessful applicants the stock invests maybe returned to the investors. In the case
of partial allotment, the stock invest is encashed only to the extent of the application money and
allotment money in respect of the shares allotted.

Allotment of Shares

After receiving the applications, the boards of directors proceed to allot the shares in consultation
with the stock exchange in the case of over-subscription. Prospectus is an invitation to offer,
application for shares offer made by the applicant and hence the directors are free to accept or
reject any application. Similarly, if the applicant wants to withdraw his offer before its acceptance,
he can do so. For a valid allotment, it is compulsory that at least minimum subscription which
is stated in prospectus should be received from public. If the minimum subscription is not
received by the company within 120 days from the date of opening of the issue, the company has
to refund the subscription without interest. If these moneys are not refunded within 130 days
from the date of opening of issue, company is liable to pay interest @ 6% p.a. for such a delay.

Minimum subscription refers to the minimum amount which, in the consideration of directors,
must be raised by the issue of shares to meet the following requirements:
(i) the purchase price of any property purchased or to be purchased, which is to be met out of
the proceeds of the issue,
(ii) any preliminary expenses payable by the company and any commission payable in
connection with the issue of shares,
(iii) the repayment of any money borrowed by the company in respect of any of the above two
matters,

(iv) working capital, and
(v) any other expenditure stating the nature and purpose thereof and the estimated amount in
each case.

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