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Differences

Danish (student) (149 Points)

29 November 2013

Watz the difference between Issue of shares and Allotment of Shares.?

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Chinnu Raj (CA Final Student B.Com) (1067 Points)
Replied 30 November 2013

Allotment of a share must always come first. Under the Companies Acts, shares are “taken to be allotted when a person acquires the unconditional right to be included in the company’s register of members in respect of the shares” (section 558 of the Companies Act 2006 (the Act)).

So once the shares are allotted, the allottee has a contractual right to those shares. She is not yet a shareholder.

The allottee only becomes a shareholder, and so acquires legal title to the shares and can exercise her rights as a shareholder, when the shares are issued. Shares are issued when the allottee’s name is entered into the company’s register of shareholders. “Every…person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.” (Section 112(2) of the Act).

That allotment is the first step in the allotment and issue process is reflected throughout the wording of Part 17 (A company’s share capital) of the Act. Section 546 makes plain the distinction between allotment and issue; and it is not the issue of shares by a company that must be registered at Companies House, but the allotment (section 554, by Form SH01). Similarly, the Act requires directors to have the power to allot shares, rather than the power to issue shares (sections 550 and 551).