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CA Foundation · Accounting · Company Accounts

A company offered 5,000 equity shares to the public but received applications for only 4,200 shares, and the issue was not underwritten. What is the legal position regarding allotment?

Allotment is permitted only if the minimum subscription stated in the offer document has been received. In an under-subscribed issue, if applications fall below that minimum, the company must refund the application money. Otherwise it may allot the shares actually applied for.

  1. AThe company may allot all 4,200 shares regardless of any minimum subscription requirement
  2. BThe company must allot 5,000 shares by issuing the balance to directors
  3. CAllotment is permitted only if the minimum subscription stated in the offer document is receivedCorrect
  4. DThe company must refund the money and can never re-issue the shares

Explanation

Under-subscription means applications fall short of shares offered. The company may allot only if it has received the minimum subscription specified in the offer document; otherwise application money must be refunded. Allotting regardless of the minimum is wrong, and directors cannot be forced to take the balance.

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