The process of issuing new shares to investors or existing shareholders. Understand the complete procedure, benefits, and legal requirements for proper share allotment.
Allotment of shares refers to the process by which a company issues new shares to shareholders, either existing or new investors. It's a crucial step in capital raising and corporate structuring.
This process is governed by the Companies Act and must comply with SEBI regulations for public companies. The board of directors typically approves share allotment after evaluating applications.
Companies allot shares for various strategic and financial reasons that benefit both the business and its stakeholders.
Primary reason for allotment is to raise funds for business expansion, R&D, debt repayment, or working capital needs without taking loans.
ESOPs (Employee Stock Option Plans) allot shares to employees as performance incentives and to retain top talent.
Allotting shares to strategic investors or partners brings not just capital but also valuable expertise and business connections.
Used in mergers, acquisitions, or demergers to facilitate business reorganization and ownership changes.
Provides long-term capital for business expansion without creating debt obligations or interest burdens.
Increases equity base, improving debt-to-equity ratio and making company more attractive to lenders.
Successful allotment demonstrates market confidence in the company's prospects and management.
Broadens shareholder base which can improve stock liquidity and potentially increase valuation.
Provides market-determined valuation of the company which helps in future fundraising.
Unlike loans, share capital doesn't require repayment and dividends are discretionary.
Board approves share issuance, determines price, and authorizes allotment process.
If required, shareholders approve through ordinary or special resolution.
Shares offered through prospectus (public issue) or private placement letter.
Investors submit applications with required documents and payment.
Board reviews applications and approves final allotment.
Allotted shares issued in physical or demat form within specified timeframe.
| Method | Description | Regulatory Requirements |
|---|---|---|
| Initial Public Offering (IPO) | First-time public offering of shares to investors | SEBI regulations, prospectus filing, extensive disclosures |
| Rights Issue | Offering shares to existing shareholders proportionately | SEBI guidelines, offer letter, minimum 15 days offer period |
| Private Placement | Selective allotment to specific investors | Max 200 investors, private placement offer letter |
| Preferential Allotment | Allotment to select investors at special price | Shareholder approval, pricing guidelines, lock-in period |
| Bonus Issue | Free shares from company reserves | Board resolution, sufficient reserves, shareholder approval if required |
| ESOPs | Allotment to employees as incentive | SEBI guidelines for listed companies, compensation committee approval |
Allotment refers to the issuance of new shares by the company, increasing the total share capital. Transfer involves changing ownership of existing shares from one shareholder to another without affecting the total number of shares.
Yes, companies can reject applications if they don't meet specified criteria or if the issue is oversubscribed. Reasons must be documented and procedures followed as per prospectus/offer document terms.
Key requirements include: Board resolution, shareholder approval if needed, compliance with SEBI regulations (for public companies), proper documentation, timely issuance of share certificates, and filing with ROC within 30 days of allotment.
For public issues, price is determined through book-building or fixed price mechanism. For preferential allotment, SEBI mandates minimum price based on market value. Private companies have more flexibility but must ensure fair valuation.
Application money for rejected applications must be refunded within specified timelines (usually 7-15 days from allotment date) with interest if delayed beyond the stipulated period.
Contact our experts for guidance on share allotment process, legal compliance, and best practices for your company.