Allotment of Share

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asdfsf sdfwer (Querist)
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12 February 2021 The Memorandum of Association and the Articles of Association of a company were delivered to the Registrar on 10 June for registration. On 15 June, the Registrar issued the Certificate of Incorporation but dated 10 June. The company made allotment of its share on 12 June. The allotment is challenged on the ground that it was made before the actual date of incorporation. Is the allotment of shares valid?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 In this scenario, the validity of the allotment of shares made on 12 June hinges on the effective date of incorporation, which is considered to be the date on which the Registrar issued the Certificate of Incorporation. Here are the key points to consider:

1. **Certificate of Incorporation Date**: The Registrar issued the Certificate of Incorporation on 15 June but dated it 10 June. According to company law principles, the company is deemed to be incorporated from the date mentioned on the Certificate of Incorporation (in this case, 10 June).

2. **Doctrine of Indoor Management**: This doctrine states that outsiders dealing with a company are not required to inquire into the regularity of internal proceedings. Therefore, third parties (such as shareholders receiving allotments) are entitled to assume that all necessary internal procedures (like incorporation) have been duly followed once a Certificate of Incorporation has been issued.

3. **Validity of Allotment**: Given that the Certificate of Incorporation is dated 10 June, the allotment of shares made on 12 June would typically be considered valid. This is because from the perspective of third parties and the company itself, the company legally existed from 10 June, as indicated on the Certificate.

4. **Legal Protection**: Courts generally uphold the validity of actions taken by a company after the date of incorporation stated on the Certificate, even if the actual issue date of the Certificate is later. The issuance of the Certificate of Incorporation with a backdated date (10 June) protects the validity of transactions, including the allotment of shares on 12 June.

Therefore, unless there are specific legal challenges or irregularities related to the issuance of the Certificate of Incorporation, the allotment of shares made on 12 June would likely be considered valid and legally enforceable. Always consider consulting with a legal professional specializing in corporate law for specific advice tailored to the jurisdiction and circumstances involved.