Allotment of shares, Business Law and Ethics

ALLOTMENT OF SHARES:

An allotment, legally, is the company's acceptance of an offer to buy its shares. Thus we can say it is governed by the following rules of the common law relating to contract.

a)      Where a company issues a prospectus, the issue is an invitation to treat but not an offer. It is not regarded as an offer because of practical reasons: if it was regarded as an offer where each application made pursuant thereto would constitute an acceptance and the company would be contractually bound to allot all the shares applied for. If the issue was oversubscribed, the company would be sued by the applicants who were not given the shares they had applied for. As this appears to be unjust the English courts have avoided the eventuality by regarding the issue of the prospectus merely as an invitation to treat. Where applications are made that they will constitute offers. The company would then find out how many shares had been applied for and, if the issue is oversubscribed, accept applications which equal the shares available and reject the others. The company would not be sued by those to whom shares have not been allotted because there would be no contract between them and the company. They made offers which were not accepted by the company - and the company could not accept the various offers because it did not have shares to sell.

b)      The company's acceptance must be unconditional. If, therefore, the application was for 10 shares and only 5 were allotted, the allotment would be a counter-offer which the allottee could reject. But this might be the only reasonable or just thing for the company to do if the issue was over-subscribed. In order to overcome the legal problem, companies invariably prepare application forms which contain a clause to the effect that the applicant "agrees to accept" such number of shares as the company in its absolute discretion may allot to him.

c)      The acceptance must be communicated to the applicant. This means that the allottee must actually receive the letter of allotment so that he is aware of the allotment. Whether the letter of allotment is lost in transit there would be no binding contract. However, it was explained in Household Fire Insurance Co. Ltd v Grant (46) that, if the applicant expressly or impliedly authorised the company to communicate the acceptance by post, there would be a binding contract the moment the letter of acceptance is posted. It is irrelevant that the letter was delayed or, as in that case, was lost in transit. In such a case the Post Office would be regarded as the applicant's agent and delivery of the letter of allotment to the post office would legally be equivalent to its delivery to the applicant himself-in accordance with the principles of the law of agency.

d)      The allotment must be made within a reasonable time: Ramsgate Victoria Hotel Co v Montefiore (47).

Posted Date: 1/12/2013 3:11:43 AM | Location : United States







Related Discussions:- Allotment of shares, Assignment Help, Ask Question on Allotment of shares, Get Answer, Expert's Help, Allotment of shares Discussions

Write discussion on Allotment of shares
Your posts are moderated
Related Questions
Liability in Tort A partner commits a tortious act so then the remaining partners are jointly and hence severally liable with him, thus provided they authorised such the act e

Question 1: With the enactment of the Labour Act 1975, how far has the freedom of the employer to unilaterally terminate contracts of employment been abrogated? Question 2:

For the transactions provided below for the Braves Corporation during 2011, complete the following steps of the accounting cycle (round all answers and journal entries to the neare

Law institutions and delegation of authority How time-consistency plays a significant role in policy process. The problems induced by the heterogeneity leading to the problem o

Defects in Appointment: S.181 provides that a director's acts shall be valid despite any defect that may afterwards be discovered in his appointment or qualification. This pro

Q. Show the Number of phoenix operators ? A key challenge in quantifying phoenix activity is estimating the number of companies engaging in the activity. In 2001/02, 1.6% of co

Fiduciary Duties: The fiduciary duties of directors arising from their fiduciary relation to the company have been the subject of consideration in an enormous body of case law

Question 1: Describe the types of pallets that exist, and suggest the one that is more suitable to an organization that has a high variety of low-value items, which high stock

PREFERENTIAL DEBTS: These unsecured debts which rank ahead of a floating charge and non-preferential debts are: (a) one year's taxes, i.e. corporation tax, PAYE income tax de

Compulsory Liquidation :                                       A petition is presented to the High Court under s.218 of the Companies Act.  The petition will specify one of the