Shares- Under Subscription & Over Subscription of Shares

According to Companies act, shares means share in the share capital of a company and include stock except where a distinction between stock and share is expressed or implied. Shares are division of share capital of a company. There are two basic types of share capital based on the types of shares which can be issued by a company under the companies act, 1956 (a) preference shares and (b) equity shares.Issue of share can be at par or at premium or at discount

Under Subscription of Shares

It rarely happens that the number of shares applied for is exactly equal to the number of shares offered to the public for subscription. If the number of shares applied for is less than the number of share issued by the company, the share are said to be undersubscribed. When an issue is under subscribed, entries are made on the basis of number of shares applied for, provided the minimum subscription is raised and the company proceeds to allot the shares.

Over Subscription of Shares

When number of share applied for exceeds the number of share issued, the share are said to be over subscribed. In such situation, directors allot shares on some reasonable basis because the company can allot only that number which is actually offered for subscription.

In short, the following procedure is adopted:

  • ┬áTotal rejection of some application;
  • Acceptance of some application in full; and
  • Allotment of remaining applicants on pro-rata basis.

In case of pro-rata allotment, no application for share is refused and no applicant is allotted the share in full. Each applicant receives the share in some proportion.

In the event of refusal or rejection of applications, the application money received in connection with such applications will be refunded to the applicants with the letter of regret.