The Crucial Steps in Allotting Shares: Legal and Practical Insights
Understanding the term “Allotment of Shares”
Share allotment is the process of assigning and distributing shares to potential investors or current owners. This stage is critical in obtaining funds, attracting investors, and expanding operations. Allotment of shares refers to the creation and distribution of new shares, which can be distributed to either new or existing owners. When we accept an application, we call it an allotment. The allotment procedure allocates a specified number of shares to each shareholder depending on the shares they have applied for and those that are available for assignment. As soon as the shares are distributed, the shareholders acquire ownership of our business to the extent of the shares that have been assigned to them.
Rules Regarding Allotment of Shares
General Rules
1. Allotment within a reasonable timeframe:
- If an offer to acquire shares is not accepted within a reasonable time frame, applicants may refuse the shares since the offer may expire.
- We evaluate each situation separately to decide what constitutes a’reasonable time.’
2. Communication of Allotment
- Applicants must be advised of their share allotment.
- A properly addressed and stamped letter of allocation constitutes valid communication.
- The allottee is responsible even if the letter is delayed or lost in route, as determined in the case of Household Fire Insurance Co. Ltd. v. Grant.
3. Absolute and unconditional allotment
- Shares must be allotted precisely in accordance with the application’s terms and conditions.
- If the allocation does not fulfil these requirements, the applicant may reject the shares.
- If the terms are not satisfied, the applicant must reject the shares immediately; otherwise, they will lose their right to refuse later on.
Legal Rules
1. Prospectus Requirements:
- A prospectus must be issued and submitted to the Registrar.
- Shares are not allotted until the fifth day after the prospectus is released, giving the public time to evaluate it.
- If shares are publicly traded, the subscription list must be open for at least three days. The prospectus often mentions the closing time.
2. Application fees:
- The payment per share at the time of application must be at least 5% of the share’s nominal value.
3. Depositing Application Money at a Scheduled Bank:
- All cash received from applicants must be put in a scheduled bank and kept until the firm gets a certificate to begin operations.
4. Stock Exchange Listings:
- Shares must be listed on a recognised stock market.
- If approval is not given within ten weeks of the subscription list ending, the corporation must return the monies to the applicants.
- Directors are obligated to reimburse with interest if restitution is not made promptly.
The process
1. Confirm Shareholdings and Shareholder ID:
- Check current shareholdings and shareholder IDs.
- Existing inniAccounts customers should contact their account manager for help and software updates.
- Confirm the new share structure as well as the number of shares to be introduced.
- Confirm new shareholders’ names, dates of birth, nationalities, addresses, proof of ID, and relationships with other shareholders.
2. Host a Board Meeting:
- Hold a board meeting to agree on modifications to the share structure.
- Keep full minutes of the meeting, including the altered share structure.
- Minutes are required to update Companies House and for auditing reasons.
3. Update the Companies House (SH01):
- Submit a Statement of Capital (SH01) form to Companies House within one month after allotment.
- The SH01 notifies Companies House on the share structure but does not include shareholder information.
4. Issue new share certificates:
- Issue new share certificates reflecting the revised shareholdings, canceling prior certificates.
5. Update the confirmation statement (CS01):
- Update your company’s confirmation statement at Companies House to reflect the new share structure.
- Include updated shareholder information in the confirmation statement, if relevant.