Issue of Shares

The process of collecting share capital in instalments is a distinctive feature of company financing. A company does not have to demand the full face value of a share at once. Instead, it can call the money in stages, matching its growing need for funds. The first instalment is collected with the application and is called application money. The second instalment, collected at the time of allotment, is allotment money. Subsequent instalments are called first call, second call, and so on. The very last instalment is always called the final call. Nothing in company law prevents a company from calling the entire amount on shares at the time of application itself.

Steps in the Issue of Shares

The procedure for issuing shares follows a clear sequence.

1. Issue of Prospectus: The company first issues a prospectus to the public. A prospectus is a formal invitation to the public, announcing that the company exists and needs funds for its business. It contains complete information about the company and the exact manner in which the money will be collected from investors.

2. Receipt of Applications: When the prospectus is issued, prospective investors (applicants) submit an application along with the application money. This money is deposited with a scheduled bank as specified in the prospectus. The company must receive the minimum subscription within 120 days from the date of issue of the prospectus. If it fails to do so, the company cannot proceed with allotment, and the application money must be returned within 130 days of the prospectus issue date.

3. Allotment of Shares: If the minimum subscription has been received and other legal formalities are fulfilled, the company proceeds with allotment. Letters of allotment are sent to those who have been given shares, and letters of regret are sent to those who have not. Once allotment is made, a valid contract is created between the company and the applicants, who now become shareholders.

Minimum Subscription

Minimum subscription is the minimum amount that, in the opinion of the directors, must be raised to meet the company's needs. These needs specifically relate to:

• The price of any property purchased or to be purchased, payable wholly or partly from the issue proceeds.
• Preliminary expenses payable by the company and any commission payable on the share issue.
• The repayment of any money borrowed by the company for the above two purposes.
• Working capital.
• Any other expenditure required for the ordinary conduct of business.

Issue at Par and at a Premium

Shares can be issued in two ways regarding their price: …