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SHARE APPLICATION MONEY PENDING ALLOTMENT

Postby SRIALOK » Sun Jun 29, 2008 10:21 pm

I have two queries :

1. For how long time period a pvt ltd company can keep the share application money pending. The money is being utilised by it.

2. Can a public limited company give share appliction money for an indefinite period to one of its associate.


I am in process of finalisation of a/c, please suggest on priority basis.

Regards

Srialok
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Re: SHARE APPLICATION MONEY PENDING ALLOTMENT

Postby nick » Mon Jun 30, 2008 10:17 pm

good to see ur pose Aloke

There is no time period for the same accordingly companies take shelter of same for advances taken from group companies.

cheers
nick
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Re: SHARE APPLICATION MONEY PENDING ALLOTMENT

Postby SRIALOK » Tue Jul 01, 2008 9:33 am

THNKS
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Re: SHARE APPLICATION MONEY PENDING ALLOTMENT

Postby viveksethia » Tue Jul 01, 2008 12:40 pm

Hi,

In case of unlisted public limited companies it can be treated two manner:

a) If the Company has the plans to allot shares in the near future then same can be treated as equity.(what is near future that is subjective)
b) if above is not the case,then it has to be shown as liablity.


Reliance has been placed on the August, 2007 edition of Ernst &Young Monthly Journal(who happens to be auditors of organisation i am working for).Pls refer page 8 of the attached file.

Regards

Vivek Sethia
Attachments
Assurance Eye August 2007.pdf
(287.97 KiB) Downloaded 847 times
Vivek Sethia
B.Com, ACS, CWA(I)
Dubai, UAE
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Re: SHARE APPLICATION MONEY PENDING ALLOTMENT

Postby pca » Wed Jul 02, 2008 11:02 am

This issue is frequently raised by members at different forums. Although there is no specific provision in the Act to this effect, I strongly feel that the practice of keeping share application money pending allotment for long time is not accordance with the law, for the following reasons:

1. The transaction relating to allotment of shares is also covered by the provisions of Contract Act, which inter-alia provides that an offer when accepted becomes an agreement and if consideration is involved it becomes a contract. In case of a listed company, procedure involved is :
- issue is made by issuing prospectus ("invitation to offer")
- application is made by applicant ("offer") alongwith application money ("consideration")
- allotment is made by the Board ("acceptance")

The offer has to be accepted within a reasonable time. What is a reasonable time will depend upon the facts and circumstances of the case. However, years together cannot in any case be deemed to be a reasonable period for acceptance of the offer. As per Sec.6 of Contract Act, the person who has made the offer is not bound by the acceptance if the same is given after unreasonable period.

2. Application for shares is addressed to the Board of Directors of the company. The board has to meet at least once in each quarter. The Board has to take a decision whether to accept the application or reject the same. The application cannot be kept pending for long without any decision.

3. In case of a private company the application will normally be made with the implied consent of the Board when the funds are required. Any layman from the public will not apply for shares of any private company. Then why the Board is keeping the application pending without allotment? It is seen in some cases that share application money is accepted beyond the authorised capital of the company to avoid ROC fees and stamp duty, which is again not legal.

4. Share application money kept pending for long time has been treated by ROC as deposit in some cases and booked cases against the company for violating provisions of Companies (Acceptance of Deposits) Rules.

5. Applicant of the shares will get no return for the money invested by him. He wil neither get interest nor dividend. His ITO can take objection for blockage of funds and can make addition for notional interest. Bankers are also not comfortable with share application money since it can be withdrawn at any time before allotment.

6. In case of share application money recd from non-residents, RBI has recently amended the rules providing for a time limit of 6 months within which shares have to be allotted, failing which share application money will have to be refunded.

Thanks
PC Agrawal
Aurangabad (Maharashtra)
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