What does allotment money mean?
An allotment commonly refers to the allocation of shares granted to a participating underwriting firm during an initial public offering (IPO). … The number one reason a company issues new shares for allotment is to raise money to finance business operations.
What is the difference between application money and allotment money?
On receipt of the applicants’ money, the company debits the bank account with the cash received and credits an application and allotment account. When the shares are allocated to the applicants they become the allottees, i.e. the new shareholders; this is known as the process of allotment.
Share application money is the amount received by a company from applicants who wish to purchase its shares. It is the money received in respect to an initial public offering of shares. This money can be more or less than the actual amount anticipated in respect to the number of shares floated.
As share application money pending allotment is neither free reserve nor paid up capital, the same cannot be included in the computation of net worth.
When the company decides to allot the shares at pro-rata basis, then it has to allot 10000 shares to the applicants of 20000 shares. Thus, the ratio will be 20000:10000 i.e. 2:1. Hence, an applicant for 2 shares will receive 1 share. This is Pro-rata allotment.
Procedure for allotment of shares are as follows:
- Appointment of Allotment Committee: …
- Hold Board Meeting to Decide the Basis of Allotment: …
- Pass Board Resolution for Allotment: …
- Collection of Allotment Money: …
- Arrangement Relating to Letters of Renunciation: …
- Arrangement Relating to Splitting of Allotment Letters:
The minimum share application money is 5% of the nominal value. The money received by the company when it issues shares to the public is known as application money. Allotment is made to the shareholders once the application money is received.
As an investor, common stock is considered an asset. You own the property; the property has value and can be liquidated for cash. … The capital is used as savings, to buy machinery or property, or to pay operating expenses.
As per the provisions of this section, even private limited companies will not be allowed to receive share application money in cash. They will require opening a separate bank account for receiving share application cheques and will not be able to use that money till they allot the shares.
What is First Call money?
Introduction. Call money is also referred to as the money at call. It is a short-term loan which is due to be paid immediately in full as and when demanded by the lender. Not similar to a term loan, call money loan does not have a defined schedule of payment and maturity.
Share Application or share allotment or Share capital A/c all are personal accounts as they represent money from the shareholders and when money is due, these are to be debited because of the rule “Debit the receiver”.
The Pune Income-tax Appellate Tribunal (the Tribunal) recently held that share application money received from shareholders pending allotment could not be characterised as or equated with share capital.
Can application money be used before allotment?
Earlier, under old Companies Act regime, many companies accepted share application money under private placement and utilized the same for the business purpose even without allotment of shares. … Now, Section 42 of the Companies Act, 2013 puts prohibition over the said practice.