{"id":113784,"date":"2023-04-28T15:29:13","date_gmt":"2023-04-28T09:59:13","guid":{"rendered":"https:\/\/legalwindow.in\/?p=113784"},"modified":"2023-04-28T15:50:48","modified_gmt":"2023-04-28T10:20:48","slug":"allotment-of-securities-by-a-company","status":"publish","type":"post","link":"https:\/\/www.legalwindow.in\/blog\/allotment-of-securities-by-a-company\/","title":{"rendered":"Provisions For the Allotment of Securities by a Company"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-113788 size-full\" title=\"Allotment of Securities by a Company\" src=\"https:\/\/legalwindow.in\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1.png\" alt=\"Allotment of Securities by a Company\" width=\"1200\" height=\"630\" srcset=\"https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1.png 1200w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1-600x315.png 600w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1-300x158.png 300w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1-1024x538.png 1024w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/Provisions-For-the-Allotment-of-Securities-by-a-Company-1-768x403.png 768w\" sizes=\"auto, (max-width: 1200px) 100vw, 1200px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">The Companies Act, 2013 provides a comprehensive framework for the allotment of securities by a company. The Act contains provisions for the issuance of securities through a prospectus or a private placement, and for the creation of debentures by a <\/span><span style=\"font-weight: 400;\">company<\/span><span style=\"font-weight: 400;\">. The Act also lays down the conditions for the authorization of the issuance of securities, the creation of a charge on assets, the redemption of securities, and the disclosure requirements.<\/span><\/p>\n<table style=\"width: 100%;\">\n<tbody>\n<tr>\n<td style=\"border: 1px solid #555;\"><b>Table of Content<\/b><\/p>\n<ul>\n<li><a href=\"#of\">Meaning of Allotment of Securities<\/a><\/li>\n<li><a href=\"#for\">Procedure for Allotment of Securities<\/a><\/li>\n<li><a href=\"#to\">Provisions related to Allotment of Securities<\/a><\/li>\n<li><a href=\"#23\">Section 23: Prohibition on issue of shares at a discount<\/a><\/li>\n<li><a href=\"#26\">Section 26: Matters to be stated in the prospectus or statement in lieu of prospectus<\/a><\/li>\n<li><a href=\"#31\">Section 31: Shelf prospectus<\/a><\/li>\n<li><a href=\"#32\">Section 32: Red herring prospectus<\/a><\/li>\n<li><a href=\"#33\">Section 33: Issue of securities through prospectus<\/a><\/li>\n<li><a href=\"#42\">Section 42: Private placement of securities<\/a><\/li>\n<li><a href=\"#62\">Section 62: Further issue of capital<\/a><\/li>\n<li><a href=\"#71\">Section 71: Debentures<\/a><\/li>\n<li><a href=\"#takeaway\">Takeaway<\/a><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2 id=\"of\"><b>Meaning of Allotment of Securities<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Allotment of Securities means to the procedure for allotting new shares or debentures by a company to investors. Offers for securities are provided on the application forms of the company. Allotment has been done when an application is permitted. When a company decides to raise funds through the issue of new shares or debentures, it offers these securities to the public or to a specific group of investors. The process of allotment involves the company determining the number of securities to be issued, the issue price, and the terms and conditions of the issue.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Investors who are interested in buying these securities apply for them by submitting an application and the required payment. The company then reviews the applications and allocates the securities to the successful applicants. The securities are allotted within a specific time frame, and the company issues share certificates to the allottees. The allotment of securities is governed by the provisions of the Companies Act, 2013, and the <\/span><span style=\"font-weight: 400;\">Securities and Exchange Board of India (SEBI)<\/span><span style=\"font-weight: 400;\"> regulations, and is a key mechanism for companies to raise funds from investors.<\/span><\/p>\n<h2 id=\"for\"><b>Procedure for Allotment of Securities<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Under the Companies Act, 2013, the allotment of securities by a company refers to the process of issuing new shares or debentures to investors. The Act provides for various provisions related to the allotment of securities, which are as follows:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Authorized Share Capital:<\/b><span style=\"font-weight: 400;\"> The company must have adequate authorized share capital to issue new shares or debentures. The authorized share capital is the maximum amount of <\/span><a href=\"https:\/\/legalwindow.in\/all-about-different-types-of-share-capital-a-complete-analysis\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">share capital<\/span><\/a><span style=\"font-weight: 400;\"> that a company is authorized to issue as per its memorandum of association.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Issue of securities:<\/b><span style=\"font-weight: 400;\"> The issue of securities must comply with the provisions of the Companies Act, 2013, and the SEBI regulations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Board Resolution:<\/b><span style=\"font-weight: 400;\"> The board of directors of the company must pass a resolution authorizing the issue of new shares or debentures. The resolution must specify the number of securities to be issued, the issue price, and the terms and conditions of the issue.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Filing of Prospectus or Statement in lieu of Prospectus:<\/b><span style=\"font-weight: 400;\"> If the company is issuing shares to the public, it must file a prospectus with the <\/span><span style=\"font-weight: 400;\">Registrar of Companies (ROC).<\/span><span style=\"font-weight: 400;\"> However, if the company is issuing shares through a private placement, it must file a statement in lieu of prospectus.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Allotment within 60 days:<\/b><span style=\"font-weight: 400;\"> The company must allot securities within 60 days from the date of receipt of the application money. If the company fails to allot securities within 60 days, it must refund the application money within 15 days from the expiry of 60 days.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Utilization of Application Money: <\/b><span style=\"font-weight: 400;\">The application money received from investors must be utilized for the specific purpose for which it was raised. The company must maintain a separate bank account for this purpose.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Issue of Share Certificates:<\/b><span style=\"font-weight: 400;\"> The company must issue share certificates to the allottees within two months from the date of allotment. The share certificates must be signed by two directors or one director and the company secretary.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Payment of Stamp Duty:<\/b><span style=\"font-weight: 400;\"> The company must pay stamp duty on the issue of securities as per the stamp duty laws applicable in the state where the registered office of the company is located.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Return of Allotment:<\/b><span style=\"font-weight: 400;\"> The company must file a return of allotment with the ROC within 30 days from the date of allotment. The return must contain the details of the securities allotted, the names and addresses of the allottees, and the amount received from them.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">These provisions are essential for ensuring that the allotment of securities is conducted in a transparent and fair manner, and that investors are protected. Companies must comply with these provisions to avoid penalties and legal consequences.<\/span><\/p>\n<h2 id=\"to\"><b>Provisions related to Allotment of Securities<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The provisions related to the issue of securities by a company can be found in Chapter III of the Companies Act, 2013, which includes Sections 23 to 42. Some of the key provisions related to the issue of securities are as follows:<\/span><\/p>\n<h2 id=\"23\"><b>Section 23: Prohibition on issue of shares at a discount\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It prohibits companies from issuing shares at a discount, which means that a company cannot issue shares at a price. That is less than the face value of the shares or at price i.e., lower than the value determined by a registered valuer. The purpose of this provision is to protect the interests of the shareholders of the company by ensuring that they receive fair value for their investment.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The section also provides that any shares issued in contravention of this provision shall be void, and the company and its officers who are responsible for the issuance of such shares shall be liable to pay a penalty. The penalty for the contravention of this provision can be up to five times the amount of the discount allowed or the amount of the gain, whichever is higher.<\/span><\/p>\n<h2 id=\"26\"><b>Section 26: Matters to be stated in the prospectus or statement in lieu of prospectus<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It specifies the matters that must be mentioned in a prospectus or a statement in lieu of prospectus. It is a document that a company must file with the ROC before making a public offer of securities. The section requires the prospectus or statement in lieu of prospectus to contain the following information:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The name and registered office address of the company issuing the securities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The objectives and details of the project for which the securities are being issued<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the securities being offered, including their nature, number, and price<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The terms and conditions of the issue of the securities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The minimum subscription amount for the securities being offered<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the lead manager, underwriters, and brokers to the issue, if any<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the auditors, bankers, and legal advisors to the issue, if any<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the directors, promoters, and key managerial personnel of the company<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the company&#8217;s shareholding pattern and the names of the significant shareholders<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of the company&#8217;s financial performance, including its profits, losses, and assets and liabilities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of any pending litigation or regulatory proceedings against the company or its directors<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The details of any material changes in the company&#8217;s affairs since the date of the last audited financial statements<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Any other information that may be necessary for investors to make an informed decision about the investment.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The purpose of this provision is to ensure that investors are provided with adequate and accurate information about the company and the securities being offered, to enable them to make an informed investment decision.<\/span><\/p>\n<h2 id=\"31\"><b>Section 31: Shelf prospectus<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It provides for the issuance of a shelf prospectus by a company. A shelf prospectus is a kind of prospectus that permits a company to offer and issuance of securities to the public on an ongoing basis, without the need for filing a new prospectus for each issue.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to this section, a company can file a shelf prospectus with the ROC having all the significant information mentioned u\/s 26. The shelf prospectus is valid for a period of one year from the date of its filing with the ROC.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If the company decides to make a public offer of securities during the validity period of the shelf prospectus, it can do so by filing a prospectus supplement with the ROC. The prospectus supplement contains the specific details of the new offer, such as the number of securities being offered, the issue price, and the terms and conditions of the offer.<\/span><\/p>\n<h2 id=\"32\"><b>Section 32: Red herring prospectus<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It defines the term red herring prospectus. It is a preliminary prospectus filed by a company with the ROC and SEBI before making a public offer of securities. It contains all the significant information about company and the securities being offered, except for the details of the price and the no. of securities being offered.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The red herring prospectus is so called because it contains a prominent statement on the cover page in red ink that states that the information contained therein is incomplete and subject to change.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The purpose of a red herring prospectus is to provide investors with preliminary information about the company and the securities being offered, and to generate investor interest in the offer. Once the price and the number of securities to be offered have been finalized, a final prospectus is filed with the ROC and SEBI, which contains all the details of the offer, including the issue price and the number of securities being offered.<\/span><b><\/b><\/p>\n<h2 id=\"33\"><b>Section 33: Issue of securities through prospectus<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It deals with the <\/span><a href=\"https:\/\/legalwindow.in\/modes-of-issue-of-securities-under-the-companies-act-2013\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">issue of securities<\/span><\/a><span style=\"font-weight: 400;\"> by a prospectus. A prospectus is a document that gives investors with all the relevant information about the company and the securities being offered, likewise the price, no. of shares, terms and conditions of the offer, and other necessary details.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As per this section, a company cannot issue securities to the public unless a prospectus has been filed with the ROC and the SEBI. The prospectus must comply with all the requirements set out in Section 26 of the Act, which outlines the information that must be included in the prospectus.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The prospectus must be dated and signed by the company&#8217;s directors, and must be filed with the ROC and SEBI at least three days before the securities are offered to the public. The prospectus must also be published in at least one English language newspaper and one regional language newspaper in the place where the company&#8217;s registered office is situated.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The prospectus must be accompanied by an application form that investors can use to apply for the securities being offered. The application form must contain all the necessary details, such as the investor&#8217;s name and address, the number of securities applied for, and the amount of money being paid.<\/span><\/p>\n<h2 id=\"42\"><b>Section 42: Private placement of securities<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It handles with the private placement of securities, which means to offer and sale of securities by a company to a select group of persons, rather than to the public at large. According to this section, a company can form a private placement of securities, subject to certain conditions. These conditions are as:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The private placement must be made only to persons who have been identified by the company&#8217;s board of directors.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The number of persons to whom the securities are being offered cannot exceed 200 in a financial year.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The offer must be made only to persons who are capable of evaluating the risks and merits of the investment, and who are not related to the promoter or director of the company.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company must issue a private placement offer letter, which must contain all the relevant details about the offer, including the number and price of the securities being offered, the terms and conditions of the offer, and the risks associated with the investment.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company must obtain the prior approval of its shareholders through a special resolution, which must be passed at a general meeting.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company must file a return of allotment with the ROC within 15 days of the allotment of securities.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The company cannot make a public announcement of the private placement offer.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The minimum investment amount for each investor and the mode of payment for the subscription of securities must be specified in the private placement offer letter. The private placement offer cannot be withdrawn after it has been made.<\/span><\/p>\n<h2 id=\"62\"><b>Section 62: Further issue of capital<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It deals with the further issue of capital by a company, which means that the issuance of shares by a company to increase additional funds after the initial issuance of shares at the time of incorporation or during subsequent fundraising rounds. Under this section, a company can make a further issue of capital by way of a rights issue or a preferential allotment. The key provisions of <\/span><span style=\"font-weight: 400;\">Section 62<\/span><span style=\"font-weight: 400;\"> are as follows:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Approval of shareholders:<\/b><span style=\"font-weight: 400;\"> A company must obtain the approval of its shareholders through a special resolution passed at a general meeting, before making a further issue of capital.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Rights issue:<\/b><span style=\"font-weight: 400;\"> A company can make a rights issue of shares to its existing shareholders in proportion to their existing shareholding. The price of the shares must not be less than the price determined by a registered valuer.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Preferential allotment:<\/b><span style=\"font-weight: 400;\"> A company can make a preferential allotment of shares to any person(s) or group of persons, subject to certain conditions. The price of the shares must not be less than the price determined by a registered valuer.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Issue of shares to employees:<\/b><span style=\"font-weight: 400;\"> A company can issue shares to its employees under a scheme of employee stock option or employee stock purchase, subject to certain conditions.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Approval of the board:<\/b><span style=\"font-weight: 400;\"> The further issue of capital must be approved by the board of directors of the company.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Allotment within 60 days:<\/b><span style=\"font-weight: 400;\"> The allotment of shares must be made within 60 days of receipt of the application money.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Filing of return of allotment:<\/b><span style=\"font-weight: 400;\"> The company must file a return of allotment with the ROC within 30 days of the allotment of shares.<\/span><\/li>\n<\/ul>\n<h2 id=\"71\"><b>Section 71: Debentures<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">It deals with issuance of debentures by a company. Debentures are debt instruments issued by companies to raise funds from the public or financial institutions. Debenture holders are creditors of the company and have a right to receive interest and principal payments.<\/span><\/p>\n<h2><a href=\"https:\/\/legalwindow.in\/share-transfer\/\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-111402 size-full\" title=\"transfer of shares\" src=\"https:\/\/legalwindow.in\/wp-content\/uploads\/transfer-of-shares-starting-from-1500.png\" alt=\"transfer of shares\" width=\"1000\" height=\"200\" srcset=\"https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/transfer-of-shares-starting-from-1500.png 1000w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/transfer-of-shares-starting-from-1500-600x120.png 600w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/transfer-of-shares-starting-from-1500-300x60.png 300w, https:\/\/www.legalwindow.in\/blog\/wp-content\/uploads\/transfer-of-shares-starting-from-1500-768x154.png 768w\" sizes=\"auto, (max-width: 1000px) 100vw, 1000px\" \/><\/a><\/h2>\n<h2 id=\"takeaway\"><b>Takeaway<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The provisions for the allotment of securities in the <a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\" target=\"_blank\" rel=\"noopener\">Companies Act, 2013<\/a> are aimed at ensuring that the interests of investors are protected and that the issuance of securities is carried out in a transparent and fair manner. Companies must comply with these provisions and follow the procedures laid down by the Act to avoid any legal or regulatory issues. For further information regarding the Allotment of Securities by a Company, kindly feel free to connect with the <\/span><a href=\"https:\/\/legalwindow.in\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">Legal window\u2019s<\/span><\/a><span style=\"font-weight: 400;\"> professionals, we would love to help you.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Companies Act, 2013 provides a comprehensive framework for the allotment of securities by a company. The Act contains provisions for the issuance of securities through a prospectus&hellip;<\/p>\n","protected":false},"author":5,"featured_media":113789,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-113784","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-company-law"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Allotment of Securities by a Company &#187; Legal Window<\/title>\n<meta name=\"description\" content=\"This article briefly describes the Allotment of Securities by a Company, Procedure for Allotment of Securities.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalwindow.in\/blog\/allotment-of-securities-by-a-company\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Allotment of Securities by a Company &#187; 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