Company law revision question and answer

In relation to allotment of shares in a company, discuss the legal position in each of the following situations:
(i) Sarah applied for 4,000 shares in a public company known as ABC Ltd. She was allotted only 2,000 shares. She intends to sue the company.

Advise Sarah.

(ii) Meshack was recently appointed an accountant of Economy Departmental Store, a public limited company. The company intends to issue shares to the public. Meshack seeks your advice on whether there are any restrictions imposed the Companies Act upon allotment of such shares.

Advise Meshack.
Answer
(i) This problem is based on allotment of shares. In this case Sarah had applied for 4000 shares but ABC Co. Ltd. allotted her 2000 only. Can Sarah sue the company? The answer to this question is emphatically no for the following reasons:
• Sarah‟s application for shares was an offer to the company which it was not bound to accept but accepted allotting her 2000 shares. If the allotment

letter was posted, the contract was concluded on postage (Household FiveInsurance Co. Ltd. V. Grant).
• Company prospectuses always provide that the company is not bound to allot the quantum of shares applied for. Since ABC Co. Ltd. is a public company there must have been a prospectus inviting prospective investors to apply for the shares.
• Since an allotment is an appropriation of a number of shares Sarah is bound to take up the number allotted to her.
• My advice to Sarah is to take up the shares allotted and drop the threat to sue the company. In any event she can always dispose them off.

(ii) Restrictions on Allotment of Shares
• no allotment should take place before the minimum subscription as stipulated
in the company‟s prospectus has been raised.
• no allotment must be effected before the delivery to the Registrar for registration, a prospectus or a statement in lieu of prospectus signed as required law and containing the relevant particulars.
• no allotment of shares should be made to a state corporation without prior written consent of the treasury.
• no allotment of shares should be made before the beginning of the third day from that on which the prospectus was first issued.

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