Q.Explain the statutory provisions for allotment of shares.

Before shares can be validly allotted, the company must comply with statutory conditions under the Companies Act, 2013 and SEBI rules — a prospectus, minimum subscription, proper application money in a separate account, listing permission, a Board resolution, and filing of the return of allotment. These protect investors and ensure a valid allotment.

Allotment is the act by which the company accepts an applicant's offer (application) for shares and thereby creates a binding contract to become a member. Because it involves public money, the law prescribes strict conditions.

Statutory provisions for allotment of shares:

• Registration of prospectus: The company must issue a prospectus (or file a statement in lieu of prospectus) inviting the public to subscribe for shares. It must be registered with the Registrar of Companies.
• Minimum subscription: No allotment can be made unless the minimum subscription stated in the prospectus has been received. If it is not received within the prescribed time, the application money must be refunded.
• Application money: The amount payable on application must be at least the prescribed percentage of the nominal value of the share (as required by law/SEBI). Shares cannot be allotted against a lower amount.
• Money kept in a separate bank account: All application money received must be kept in a separate account in a scheduled bank until allotment is complete, and it cannot be used before that.
• Permission for listing: Where shares are offered to the public, the company must apply for and obtain permission for the shares to be listed on a recognised stock exchange; without such permission the allotment is not valid.
• SEBI guidelines: A public issue must comply with the guidelines and disclosure norms laid down by SEBI.
• Proper authority: Allotment must be made by a valid resolution of the Board of Directors (or an allotment committee), and it must be made within a reasonable/prescribed time. …