Business Studies

If the number of shares applied for is more than the number of shares issued the shares are said to be ____________.


ANSWER

Oversubscribed


SOLUTION
Oversubscribed:-
Over subscription of shares refers to the situation when the number of shares applied for is more than the number of shares offered for subscription. But it is also true that company cannot allot shares more than those offered for subscription. In case of over-subscription, a company cannot allot shares more than those offered for subscription.
In the case of over-subscription, the company cannot allot shares to all the applicants in full. To deal with the situation, three alternatives are:

First Alternatives- Some applications are accepted in full and excess applications are rejected and money is refunded instantly. This is known as Rejection of Applications. For example, company invites application for 60,000 shares. However the application received are for 80,000 shares. In this alternative, the excess application that is 20,000 will be outright rejected.

Second Alternatives- Applicants may also be allotted shares in fixed proportions. This is known as Pro rata Allotment or Partial allotment. For example, in the above case, allotment of shares in the ratio of 6 shares for 8 applied.

Third Alternatives- A combination of above two alternatives can also be adopted. In this, a company may accept some applications and reject some. Then proportional allotment may be made to the remaining. Considering above example, instead of rejecting 20,000 applications, company can give shares to 10000 applicants on pro rata basis and reject the remaining applications.
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