4.4 Issue and allotment


In response to an issue of a prospectus there shall come application for shares from the prospective investors. Allotment is the acceptance of the offer. Once an offer is accepted it results in a contract binding the Company to the member and the applicant becomes a shareholder. The provisions regarding allotment are either general or statutory:

General Provisions

A valid allotment must be made in accordance with general rules of the law of contract relating to offer and acceptance. The rules include:

  • Allotment must be made by proper authority – the board of directors is the body authorized to allot shares and this duty cannot be delegated
  • Allotment must be made within a reasonable time otherwise the applicant is not bound to accept it
  • Allotment must be communicated to the applicant so that it is legally complete. Acceptance is completed immediately the letter of allotment is posted even if such letter gets lost or delays.
  • Allotment must be absolute and unconditional otherwise the applicant is not bound to take the shares
  • Revocation of an application may be done any time before allotment is done and communication made by post

In National Savings Bank Association Case

H applied for shares in the Company. The shares were allotted to him but the letter of allotment was sent to the Company’s agent for delivery; by hand to H. After the allotment but before the letter of allotment was delivered to him H withdrew his application. It was held that H was not a shareholder in the Company because he withdrew his offer before acceptance(allotment) was made hence there was no binding contract between him and the company.