Over Subscription and pro- rata Allotment

Over Subscription and pro- rata Allotment:-

When shares are over subscribed, it is not possible for company to satisfy all the applicants. Allotment of shares is done at the discretion of company. Allotment basis can be any one of the following:-

(a)Company may allot full shares to some and reject others.

(b) Allotment of shares on Pro-rata basis.


Pro-rata Allotment:- Means allotment of shares in proportion of shares applied for. Applicants are informed about allotment procedure through an advertisement in leading newspapers.

Calls –in Arrears: Sometimes share holders fail to pay the amount due on allotment or calls. The total unpaid amount on one or more installments is known as call-in-arrear or unpaid calls. Such amount represents uncollected amount of capital from shareholders. Call-in-arrear is deducted from called-up capital to reach at paid-up value of share capital. Generally Articles of Association empower the directors to charge interest at stipulated rate on call-in-arrear. However, according to Table F of articles of association, Interest at the rate of 10% per annum is charged on unpaid calls for the period started from the due date and end on when actual payment is made. However, directors have authority to waive the application of this rule in individual cases at their discretion.

Call-in Advance:- Sometime, shareholders pay in advance for calls which have not been made. This amount may be with application money, allotment money, first call etc. Calls in advance is shown as a separate item on the liability side of the balance sheet under the head ‘other current liability’. As per table F of articles of association, INTEREST on calls in advance is paid @ 12% p.a.

Forfeiture of shares:- The Article of a company usually authorize the directors to forfeit shares of a member on account of non-payment of a call or interest thereon after serving him a prior notice as prescribed by the articles. Premium money received is never forfeited.

Re-issue of forfeited shares:- Forfeited shares can be re-issued at any price so long as the total amount received (from the original allottee and the second purchaser) for those shares is not less than the amount in arrears on those shares. Loss on re-issue can not exceed the forfeited amount. If the loss on re-issue is less than the forfeited amount, the surplus should be transferred to capital reserve. The forfeited amount on shares not yet re-issued should be shown in the balance sheet as an addition to the share capital.  When the shares are re-issued at loss then such loss is debited to ‘Forfeited shares account’. If the shares are re-issued at a price which is more than the face value of the shares, the excess amount will be credited to ‘securities premium account’. When shares originally issued at a discount are re-issued at a loss, the loss to the extent of original discount is debited to Discount on issue of shares Account and the balance loss is debited to forfeited shares Account.

ISSUE OF SHARES FOR CONSIDERATION OTHER THAN CASH:- A company may issue shares in a direct exchange for land, building or other assets. Shares may also be issued in payment for services rendered by promoters, lawyers in the formation of the company. In the balance sheet, these shares should be shown separately. Within one month of allotment, the company must provide before the registration.

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