Shares are allotted by the directors
As with all other decisions of the directors, minutes must be taken and kept for ten years.
The articles may contain such an authority but if they do not or if the authority has expired then an ordinary resolution of shareholders is required to allow the allotment.
The general rules regarding allotment of shares are as foIlows: i) The allotment must be made by proper authority: It is the duty of the Board of’ directors to aIlot the shares. However, the Board may delegate this authority to some other person or persons as per the provisions of the articles of association.
What is the procedure & consequence. 1) You can not allot share before allotment/subscription money received. 2) The Board will allot shares on the credit of allotment money in its bank account. You will not allot on the basis of cheque received.
Under the Companies Act 2006 (s551) directors of public companies must be authorised either by ordinary resolution or by the articles of association to allot shares or grant rights to subscribe for shares or to convert any security into shares in the company.
From 1 October 2009, directors of companies who are generally authorised by their shareholders to allot shares will be given the power to allot shares pursuant to that authority as if such pre-emption rights did not apply, if authorised to do so by their articles or by special resolution.
Sec. 72(3) states that the validity of an allotment shall not be affected by any contravention of the foregoing provisions of this section, but,, in the event of any such contravention, the company, a fid every officer of the company who is in default, shall be punishable with fine which may extend to Rs. 5,000.
On passing the resolution for allotment of shares, the allotment of shares must be done within 60 days of receiving the application money for the same.
The key difference between allotment and issue of shares is that an allotment is a method of share distribution in a company whereas share issue is the offering of the ownership of the shares to shareholders to hold, and later transfer to another investor.
Share allotment is the creation and issuing of new shares, by a company. New shares can be issued to either new or existing shareholders. Share allotment can have implications for any existing shareholders share proportion. Typically, new shares are allotted to bring on new business partners.
Directors’ power to issue shares
Directors of a private company with just one class of shares (formed under the current Companies Act 2006) have the power to issue shares without any additional authority, as long as the company’s articles don’t forbid them from doing so.
The shares of a private limited company can be issued through the Rights Issue to existing shareholders of the company. The company can also issue shares to outsiders i.e. any person other than the existing members subject to provisions of Indian Companies Act, 2013.