There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the codes provided below-
Assertion: Proportionate allotment or pro-rata allotment can be made in case of oversubscription of shares.
Reasoning: In the case of over-subscription, it is not possible for the company to allot shares to every applicant in the number that he desires.
Answer & explanation
Correct answer: option 1
There are instances when applications for more shares of a company are received than the number offered to the public for subscription. This usually happens in respect of shares issue of well-managed and financially strong companies and is said to be a case of ‘Over Subscription’. In such a condition, three alternatives are available to the directors to deal with the situation: (1) they can accept some applications in full and totally reject the others; (2) they can make a pro-rata allotment to all; and (3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.