A method of distributing previously unissued shares in a limited company in exchange for a contribution of capital. An application for such shares will often be made after the issue of a prospectus on the flotation of a public company or on the privatization of a state-owned industry. The company accepts the application by dispatching a letter of allotment to the applicant stating how many shares have been allotted; the applicant then has an unconditional right to be entered in the register of members in respect of those shares. If the number of shares applied for exceeds the number available (oversubscription), allotment is made by a random draw or by a proportional allocation. An applicant allotted fewer shares than applied for is sent a cheque for the unallotted balance (an application must be accompanied by a cheque for the full value of the shares applied for). See also multiple application.
Subjects: Financial Institutions and Services.