There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): When the shares are over-subscribed, shares can be issued on a pro-rata basis to all the applicants.
Reason (R): The number of shares allotted cannot be more than the number of shares issued for subscription, allotment can not be made to all the applicants. Hence, shares may be allotted on a pro-rata basis to all the applicants.
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.
(3) they can adopt a combination of the above two alternatives which happens to be the most common course adopted in practice.