Page 202 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 10: Share Capital

such a company is required to file with the Registrar a statement in lieu of prospectus at least 3 Notes
days before making allotment of any shares or debentures.
As per the guidelines issued by SEBI in June, 1992, private placement of shares should not
be made by subscription of shares from unrelated investors through any kind of market
intermediaries. This means promoters share should not be contributed by subscription of those
shares by unrelated investors through brokers, merchant bankers, etc. However, subscription of
such shares by friends, relatives and associates is allowed.
By an offer for sale. Under this arrangement, the company allots or agrees to allot shares or

debentures at a price to a financial institution or an Issue-house for sale to the public. The Issue-
house publishes a document called an offer for sale, with an application form attached, offering
to the public shares or debentures for sale at a price higher than what is paid by it or at par. This
document is deemed to be a prospectus [s.64(1)]. On receipt of applications from the public, the
Issue-house renounces the allotment of the number of shares mentioned in the application in
favour of the applicant purchaser who becomes a direct allottee of the shares.
By inviting public through prospectus. This is the most common method by which a company
seeks to raise capital from the public. The company invites offers from members of the public to
subscribe for the shares or debentures through prospectus. An investor is expected to study the
prospectus and if convinced about the prospects of the company, apply for shares.

Issue of shares to existing shareholders. The capital is also raised by issue of rights shares to the
existing shareholders (s.81). In this case the shares are allotted to the existing equity shareholders
in proportion to their original shareholding, e.g., one share against every two shares held by a
member.
Public issue of shares. Public issue of shares means the selling or marketing of shares for
subscription by the public by issue of prospectus. For raising capital from the public by the issue
of shares or debentures, a public company has to comply with the provisions of the Companies
Act, the Securities Contracts (Regulations) Act including the Rules made thereunder and the
Guidelines and instructions issued by the concerned Government authorities, the Stock Exchange
and SEBI, etc. Management of public issue involves coordination of activities and cooperation
of a number of agencies such as managers to the issue, underwriters, brokers, registrars to the
issue, solicitors/legal advisors, printers, publicity and advertising agents, fi nancial institutions,
auditors and other Government/Statutory agencies such as Registrar of Companies, Reserve
Bank of India, stock exchange, SEBI, etc.
It is advisable to keep in mind the guidelines issued by SEBI with regard to issue of shares termed
as “Guidelines for Disclosure and Investor Protection” before issuing shares to the public.
Share application form to seek permanent account number. In respect of applications for value
of ` 50,000 or more, the applicant or in case of applications in joint names, each of the applicant,
shall mention his/her permanent account number/GIR number and income-tax circle, ward,
district or the fact of non-allotment of PAN/GIR number, as the case may be and applications not
complying with the provisions are liable to be rejected.

10.3 Allotment of Shares

Introduction

In response to the issue of the prospectus, the company receives the applications for shares

along with application money either at the register office or the company or by its bankers. Now,
the Board of Directors would like to make the allotment of shares. But before this can be done,
certain statutory restrictions are to be complied with. In this part, we shall discuss the meaning
of allotment and the restrictions which are imposed by law before allotment of shares can be
made.

LOVELY PROFESSIONAL UNIVERSITY 197