Allotment of Shares

Creating Enterprenuers & Simplifying Compliances


Creating Enterprenuers & Simplifying Compliances

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Allotment of Shares

Allotment of shares refers to the distribution of shares among the shareholders who applied for the shares or submitted written application for the allotment of shares. As soon as the company receives the applications for shares issued by means of prospectus, it starts allotting shares on preset basis.

In case, the applications exceed the available shares, allotment is made on proportional basis. Allotment of shares is one of the best ways available for a company if it is looking to raise new finance. Moreover, a company is free to issue shares to both individuals or corporate establishments.

Scenarios that Lead to the Allotment of Shares by a Company

  • When the company is established or incorporated
  • To repay the company’s borrowings
  • To flourish the business
  • To fund a project or development
  • To acquire or purchase another entity
  • To improve the balance sheet of a company
  • To capitalise issue of shares or provide bonus to the shareholders

The Companies Act, 2013 states that there are two ways by which a company can raise its funds. It can be done through the private placement of shares and right issue of shares. It is important to know that a private company can either issue shares to its existing or current shareholders by the method of rights issue or provide them bonus shares.

The first method of allotting shares i.e. private placement of shares implies the sale of securities to a small group of selected investors with the purpose of increasing capital. Usually, mutual funds, banks, pension funds and insurance companies invest in the private placement of shares. It has to be taken care that during the private placement of shares, the invitation to subscribe securities should not be made to more than two hundred persons in aggregate in a financial year.

The second method of allotting shares i.e. Right issue of shares refers to the issue of rights to the existing shareholders of the company. It allows them to buy additional shares directly from the company in proportion to their current holdings, within a set period of time. Under right issue of shares, a company can issue shares on preferential basis and can also issue sweat equity shares. Sweat Equity Shares refers to the equity shares, issued by a company to its employees or directors at discount or for consideration, other than cash.

Change in Company Name

Procedure for Private Limited Company Name Change

The name of a private limited company may have to be changed for a number of reasons including change of objective of the business, change of management, rebranding, etc., The name of a private limited company can be changed at anytime with the approval of the shareholders and Ministry of Corporate Affairs (MCA). In this article, we look at the procedure for private limited company name change.

Private Limited Company Name Change

The name adopted by a private limited company during incorporation can be changed later. To change the name of a private limited company, the consent of the shareholders through a special resolution and MCA approval are required. The change of name of a private limited company has no impact on its legal entity or its existence as a corporate entity. The change of name of a company will not create a new company or new entity. Therefore, the change of company name shall NOT:

  • Affect any rights or obligations of the company
  • Render defective any legal proceedings by or against the company
  • Not affect any legal proceedings by or against the company and pending in the old name; they may continue in the old name.

STEPS OF Private Limited Company Name Change

Board Resolution

A Board meeting must be convened to pass a resolution for change of name of the company and to authorize a Director or Company Secretary to make an application to the MCA for ascertaining availability of proposed name. At the same Board meeting, a resolution to convene an extraordinary general meeting for changing the name of the company, and altering the Memorandum of Association and Articles of Association can also be passed.

Check Company Name Availability

Once a resolution is passed ascertaining availability of proposed company name, the authorized person can make a name application to the MCA. The procedure for name application is similar to that of the name application procedure followed during incorporation of a private limited company. Therefore, the name must be as per the Companies Act 2013 Naming Guidelines.

Pass Special Resolution for Company Name Change

Once a name is approved by the MCA, the Company must conduct an extraordinary general meeting and pass a special resolution for change of company name, and consequential changes to the Memorandum of Association and Articles of Association.

Application for approval of Company Name Change

Once the special resolution for change of company name is passed, the special resolution and application for approval of company name change must be filed with the Registrar of Companies. An application for company name change must be made in Form 1B along with the requisite fee.

Issuance of New Certificate of Incorporation

If the Registrar of Companies is satisfied with the company name change application, the Registrar would issue a new certificate of incorporation. It is important to note that the company name change is said to be complete and effective on issuance of new incorporation certificate by the Registrar of Companies.

Make Changes to MOA and AOA

Subsequent to the issuance of the new incorporation certificate, steps must be taken to incorporate the new company name in all the copies of Memorandum of Association, Articles of Association and Certificate of Incorporation issued by the Registrar.