Share Allotment Compliance

Share allotment compliance refers to the legal and procedural requirements that a company must fulfill when issuing new shares to its existing or new shareholders. Proper compliance with the regulatory framework is crucial for maintaining transparency and legality in the share issuance process.

Compliance Requirements

  1. Purpose of Share Allotment: Share allotment is conducted to raise capital for the company, reward employees through employee stock options, or facilitate a strategic partnership by bringing in new investors.
  2. Regulatory Framework: The issuance of shares is governed by the Companies Act, 2013, and relevant rules set forth by the Ministry of Corporate Affairs (MCA). Key aspects include:
    • Proper documentation and approval before allotting shares.
    • Adherence to the terms outlined in the Articles of Association (AOA) and any shareholder agreements.

Legal Process

  1. Board Resolution:
    • The process begins with the board of directors passing a resolution to approve the share allotment, specifying the number of shares, share price, and the intended recipients.
  2. Offer and Acceptance:
    • The company must make an offer for the shares, which can be in the form of a letter of offer to existing shareholders, especially in the case of rights issues.
    • Acceptance of the offer must be recorded, often requiring the payment of the share price.
  3. Filing with ROC:
    • After the shares are allotted, the company must file Form PAS-3 (Return of Allotment) with the Registrar of Companies (ROC) within 30 days of allotment. This form includes details of the allotment, such as the number of shares issued, the names of allottees, and the consideration received.
  4. Updating Register of Members:
    • The company must update its Register of Members to reflect the new shareholders and the shares allotted.

Required Documentation

  • Board Resolution: Documenting the decision to allot shares, including details about the number of shares and allottee information.
  • Offer Letter: Communication sent to the shareholders or potential investors detailing the share offer.
  • Form PAS-3: The official return of allotment to be filed with the ROC.
  • Payment Confirmation: Evidence of receipt of payment for the shares allotted.
  • Updated Register of Members: A record of all current shareholders, including new allotments.

Charges

  • Professional Fees: ₹3,000 – ₹10,000 for assistance in the share allotment process, which may include legal consultation, drafting necessary documents, and filing with the ROC.
  • Government Fees: Nominal fees for filing Form PAS-3 with the ROC, which may vary depending on the authorized capital of the company.

Timeline

  • The share allotment process can typically be completed within 2 to 4 weeks, depending on the internal processes of the company and the speed of ROC processing.

Important Considerations

  • Preemptive Rights: Existing shareholders usually have the right to purchase new shares before they are offered to outside investors, as per the provisions in the AOA or shareholder agreements.
  • Valuation: Shares should be issued at a fair market value, especially in cases involving related parties to avoid legal issues.
  • Documentation Accuracy: It is critical to ensure that all documentation is complete and accurate to avoid regulatory complications.

Conclusion

Share allotment compliance is an essential process for any company looking to raise capital through the issuance of shares. Adhering to the legal requirements and maintaining thorough documentation is vital for ensuring compliance with the Companies Act, 2013. Companies should consider engaging professional services to navigate the complexities of share allotment and ensure all regulatory obligations are met.