Allotted Shares

Allotted shares are distributed to new shareholders through the process of allotment, forming part of the allotted share capital. They are essential for companies as they raise capital by issuing these shares to investors.
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Definition

Allotted shares refer to the shares of a company that have been distributed to new or existing shareholders through the process known as share allotment. This allocation forms part of the company’s allotted share capital, which represents the amount of money raised through the issuance of shares to investors.

Detailed Explanation

The process of allotment involves the company’s board of directors deciding to issue a certain number of shares to expand the shareholder base or to raise capital for the company’s operations, growth, or other financial needs. The shares are then distributed to investors who subscribe to them. Once the allotment process is complete, these shares become part of the allotted share capital, differentiating them from other categories like authorized share capital or issued share capital.

Steps in Share Allotment:

  1. Board Approval: The board of directors passes a resolution to allot shares.
  2. Application Process: Potential investors submit applications for the purchase of shares.
  3. Allotment Decision: The company decides how many shares to allot to each applicant.
  4. Notification: Allottees are notified of their share allotment.
  5. Share Issuance: Finally, share certificates are issued to the new shareholders.

Examples

  1. Initial Public Offering (IPO): During an IPO, a company may allot shares to the public for the first time. Investors who subscribe to the IPO will receive allotted shares once the process is complete.

  2. Rights Issue: When a company issues new shares to its existing shareholders at a discount, those shareholders can subscribe to these rights. The new shares they receive are considered allotted shares.

  3. Employee Stock Options (ESOPs): Companies may allot shares to employees as an incentive through ESOPs. The shares issued under this plan are allotted shares.

Frequently Asked Questions (FAQs)

Q1: What is the difference between allotted shares and issued shares?

  • A1: Allotted shares refer to the shares that have been distributed to shareholders through the process of allotment. Issued shares include all the shares that have been issued by the company, encompassing allotted shares and other issued shares not necessarily distributed through allotment.

Q2: Can allotted shares be traded immediately?

  • A2: It depends on the terms laid out by the company. In many cases, there might be a lock-in period during which allotted shares cannot be sold or traded.

Q3: Are there any restrictions on the number of shares a company can allot?

  • A3: Yes, the number of shares a company can allot is usually restricted by its authorized share capital, which sets the maximum number of shares the company is allowed to issue.
  • Issued Share Capital: The total value of shares that a company has issued to shareholders. This includes allotted shares.
  • Authorized Share Capital: The maximum amount of share capital that a company is authorized to issue as per its corporate charter.
  • Subscription: The act of investors applying for shares during an allotment process.

Online References

Suggested Books for Further Studies

  • “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
  • “Corporate Finance” by Jonathan Berk and Peter DeMarzo
  • “The Essentials of Corporate Law and Governance” by Thomas B. Courtney

Accounting Basics: “Allotted Shares” Fundamentals Quiz

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