A salient characteristic of the capital of a company is that the amount on its shares can be gradually collected in easy instalments spread over a period of time depending upon its growing financial requirement. The first instalment is collected along with application and is thus, known as application money, the second on allotment (termed as allotment money), and the remaining instalment are termed as first call, second call and so on. The word final is sufixed to the last instalment. However, this in no way prevents a company from calling the full amount on shares right at the time of application.
The important steps in the procedure of issuing shares are :
- Issue of Prospectus: The company first issues the prospectus to the public. Prospectus is an invitation to the public that a new company has come into existence and it needs funds for doing business. It contains complete information about the company and the manner in which the money is to be collected from the prospective investors.
- Receipt of Applications: When prospectus is issued to the public, prospective investors intending to subscribe the share capital of the company would make an application along with the application money and deposit the same with a scheduled bank as specified in the prospectus. The company has to get minimum subscription within 120 days from the date of the issue of the prospectus. If the company fails to receive the same within the said period, the company cannot proceed for the allotment of shares and application money should be returned within 130 days of the date of issue of prospectus.
- Allotment of Shares: If minimum subscription has been received, the company may proceed for the allotment of shares after fulfilling certain other legal formalities. Letters of allotment are sent to those whom the shares have been alloted, and letters of regret to those to whom no allotment has been more. When allotment is made, it results in a valid contract between the company and the applicants who now became the shareholders of the company.
Shares of a company are issued either at par, at a premium or at a discount.
- Shares are said to have been issued at par when their issue price is exactly equal to their nominal value according to the terms and conditions of issue.
- When the shares of a company are issued more than its nominal value (face value), the excess amount is called premium and the issue is said to have been made at a premium.
- When the shares are issued at a price less than the face value of the share, it is known as shares issued at a discount.
Irrespective of the fact that shares are issued at par, premium or discount, the share capital of a company as stated earlier, is collected in instalments to be paid at different stages.