What is Issue of Shares?
The issue of shares is the procedure in which enterprises allocate new shares to the shareholders. Shareholders can be either corporates or individuals. The enterprise follows the rules stipulated by Companies Act 2013 while circulating the shares. The Issue of Prospectus, Receiving Applications, Allocation of Shares are 3 key fundamental steps of the process of issuing the shares.
A noticeable feature of the company’s capital is that the amount on its shares can be progressively collected in simple instalments that are spread over a time frame relying upon its enhancing financial obligation. The 1st instalment is collected with the application and is hence, called as application money, the 2nd is on allocation (termed as allocation or allotment of money), and the 3rd instalment is known as a 1st call, 2nd call and so on. The word-final is suffixed to the final instalment. This procedure, in no way, prevents an enterprise from calling the entire amount on shares during the period of application.
The significant steps in the process of issue of shares are given below :
- Issue of Prospectus: The enterprise initially issues the prospectus to the public generally. The prospectus is an appeal to the public that a new enterprise has come into the presence and it would require funds for operating the trading concern. It comprises of complete data regarding the enterprise and the way in which the money is to be collected from the prospective investors.
- Receipt of Applications: When the prospectus is circulated to the public, prospective investors contemplating to sign up and subscribe the share capital of the enterprise would make an application along with the application money and deposit it with a scheduled bank as mentioned in the prospectus.
- Allocation of shares: Once the minimum subscription has been done, the shares can be allocated. Normally, there is always oversubscription of shares, so the allocation is done on pro-rata ground. Letters of Allotment are sent out to those people who have been allocated their part of shares. This results in an authentic contract between the enterprise and the claimant, who will now be a part-owner of the enterprise.