Allotment letter

Allotment letter
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Allotment letter also known as letter of allotment is a method by which investors aka subscribers can distribute their securities. Securities or bonds stand for financial instruments, which can be used by investors to raise the capital. When the subscribiton period comes to its end, the demand for a new issue can surpass the number of shares or bonds which are being issued. In this case, the proper bank can allot all the bonds in two ways: either on the basis of the formular or by lottery. What is important, the letter of allotment can be renounced or even sold. Allotment letter is a title to the rights on stock.

Accrding to [1] the Cambridge Dictionary, the letter of allotment is a letter which is showing someone how many shares, securities or bonds they have been given, when the new shares are being made avilable to purchase.

Another definition can be found on [2] Wikipedia while reading about subscription itself. In the article, allotment stands next to subscription agreement and subscribtion period. It is defined as a method of distributing the securities or bonds.

What we can read on [3] the Law Dictionary, Allotment letter confirms number of securities alloted to investor for a new issue. It is a formal document, certificate with renounce date. The owner - stockholder - may renounce it to another stockholder or sell. Allotment letter accepted by stockholder is the evidence of title to the stockholding. It can be traded on a stock exchange.

Allotment letter in real estate

Allotment letter is used also in real estate. When individual buys property under construction he/she has to receive allotment letter from the builder. In that case, allotment letter includes details regarding the property, payment options, charges, etc. It is necessary in order to obtain loan from the bank.

Preparation of allotment letter

According to [4] Equatorial Guinea Company Laws and Regulations Handbook when preparing the letter of allotment twelve steps should be taken into account.

  1. the name of the company followed
  2. form of the given company
  3. the amount of authorized capital
  4. the address of the registered office
  5. the registration number of the company
  6. the amount and conditions of increase of capital
  7. if needed, the amount of to be subscribed for shares
  8. the name of the company, which is receiving the funds
  9. full name of the subscriber
  10. indication of the proper bank
  11. mention of the notary responsible for the bonds
  12. mention of giving the copy of the letter to the subscriber

What is more important, when preparing the letter of allotment, if the subscriber cannot sign the letter himself, it can be done by his authorized agent, who should later on gave the copy of mentioned letter to the subscriber.

Footnotes

  1. Cambridge Dictionary
  2. Wikipedia
  3. Law Dictionary
  4. International Business Publication (2012) Equatorial Guinea Company Laws and Regulations Handbook

References

Author: Agnieszka Gołuszka