Oversubscription & undersubscription of Shares

Shares are said to be oversubscribed when the shares applied are more than the shares offered for subscription. Since the company cannot allot shares more than the shares offered for subscription .
shares can be allotted by any of the following three alternatives
1. First Alternative: Rejection of Excess Applications
Some applications are accepted in full and excess applications are rejected and their
application money is refunded. This is known as Rejection of Applications.
For example-: against the issue of 1,00,000 shares, applications received are for 1,20,000 shares. Applications for shares in excess of 1,00,000 shares, 20,000 shares are not accepted and their application money is refunded.
2. Second Alternative: Partial or Pro rata Allotment
All applicants are allotted shares in proportion. This is called Partial or Pro rata Allotment.
For example-: considering the above example, shares are allotted to all the applicants in the ratio of 10 shares for every 12 shares applied.
Question  – What is meant by pro-rata allotment of shares? All India 2010( Arihant PYQs)
 Ans. In the case of over subscription, it is not possible to allot shares to all applicants. Applicants may be allotted less number of shares than they have applied for. This type of allotment of shares is known as pro-rata allotment of shares, e.g. If company allots 50,000 shares to applicants of 75,000 shares, it is pro-rata allotment in proportion of 2 : 3.
3. Third Alternative: Any Combination of above Two Alternatives
A combination of the above two alternatives may be adopted. Some applications are accepted in
full, some applications are rejected and proportionate allotment is made to the remaining. For
example, considering the above example, shares are allotted as follows:
Applications for 40,000 shares are accepted in full, applications for 20,000 shares are rejected
and the balance applications are allotted on pro rata basis, in ratio of 3 shares for every 4 shares applied.
Shares are said to be undersubscribed if the number of shares applied are less than the number of shares issued for subscription.
For example-: a company has offered 1,00,000 shares to public for subscription and applications received are for 75,000 shares it is a case of undersubscription.
Minimum Subscription
According to SEBI Guidelines, if a company does not receive minimum subscription,  it does not receive subscription for at least 90% of the shares issued, it cannot allot the shares. As a result, it will have to refund the application money to the subscribers.


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