The allotment of shares involves the creation and distribution of new shares by a company. These new shares can be offered to both existing and new shareholders. The process starts with the company providing application forms for the shares.
Once the application is approved, it becomes known as an allotment. The company that offers the shares is synonymous with the term "allotment".
Essentially, it is the allocation of shares by the company's directors to a specific individual. Reissuing forfeited shares is different from allotment. To be valid, the allotment of shares must comply with the provisions of the Companies Act 2013 and the principles of contract law relating to the acceptance of offers.
A company, with the approval of its board of directors, may allocate shares to existing shareholders based on their existing shareholdings. The offer to the shareholders must be open for a minimum of 15 days and a maximum of 30 days. Additionally, the shareholders must be given the option to transfer their rights to purchase the shares to another person. For private companies, the time limit for allotting shares may be reduced if agreed upon by at least 90% of the shareholders.
Private placement refers to the allocation of shares to a limited group of individuals rather than to the general public. Unlike in a right issue, these shares do not come with the option to transfer the rights to purchase to another person. In order to allocate shares through private placement, a company must first secure approval through a resolution passed at a general meeting and receive the consent of its shareholders.
Public placement involves the general public making applications for shares, from which the company then allocates shares to the public based on its discretion. This option is only available to public companies and not to private companies.
Preferential allotment is a method of allocating shares in a company to existing shareholders or external individuals at a price lower than the current market price. The company may offer these shares in exchange for cash or other forms of consideration, such as shares in other companies or debentures. This type of allotment is also referred to as a reservation issue or bonus issue.
