Allotment letter

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 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 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 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 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.

Examples of Allotment letter

• An allotment letter is sent to shareholders when their stock has been allocated. This letter will inform the shareholders of the amount of shares they have been allocated and the price at which these shares were allocated.
• An allotment letter is also sent to bondholders when their bonds have been issued. This letter will confirm the amount of bonds issued, the face value, the coupon rate, and the maturity date of the bonds.
• An allotment letter may also be sent to a borrower when a loan has been approved. This letter will provide details of the loan amount, the interest rate, and the repayment terms.
• An allotment letter may also be sent to a tenant when their rental application has been approved. This letter will provide details of the rental agreement, the rental amount, and the security deposit.

Advantages of Allotment letter

An allotment letter is a method used by investors (or subscribers) to distribute their securities. It offers several advantages for the investor, including:

• The ability to control the allotment of their securities and the timing of their release. This allows investors to ensure that their investments are properly distributed and that their investments are being used in the most efficient manner.
• Allotment letters also provide investors with an opportunity to purchase additional securities if they desire, as well as to transfer or sell their current investments.
• Investors may also use allotment letters to adjust their portfolio and make sure that their investments are properly diversified.
• Allotment letters are also useful for providing investors with additional information about the securities they are investing in, such as the company’s financials and the risks associated with the investment.
• Finally, allotment letters are a way for investors to gain access to capital markets and potentially increase their returns.

Limitations of Allotment letter

Introduction: Allotment letters may be a convenient way to distribute securities, but there are some limitations that should be considered:

• Allotment letters may not be available in all countries. In some countries, laws and regulations may not allow for the issuance of allotment letters.
• Allotment letters may take a significant amount of time to issue, as they must be reviewed and approved by the company’s board of directors.
• Allotment letters may require large amounts of paperwork and legal documents, which can also add to the time required for the issuance of the letters.
• Allotment letters are typically non-transferable, meaning that the investor is unable to transfer the shares to another person.
• Allotment letters may have restrictions on the types and amount of securities that can be issued.
• Allotment letters may have a limited duration and may expire, requiring the investor to renew them periodically.
• Allotment letters may have restrictions on the sale or transfer of the securities, which may limit the investor’s ability to sell the securities in the future.

Other approaches related to Allotment letter

Introduction: There are several other approaches related to allotment letter that investors can use:

• Direct Allotment: In this method, the issuer directly allocates securities to subscribers without any intermediaries.
• Rights Issue: This is a method by which the existing shareholders of a company can subscribe to new shares.
• Private Placement: This is a method by which a company issues securities to a select group of investors through a private offering.
• Initial Public Offering (IPO): This is a method by which a private company can issue its shares to the public and become a publicly-traded company.

In summary, there are several other approaches related to allotment letter that investors can use, such as direct allotment, rights issue, private placement, and initial public offering. These methods offer investors the opportunity to distribute their securities in different ways.

Footnotes

Allotment letter — recommended articles

Share certificate — Distribution In Kind — Redeemable shares — External sources of finance — Memorandum account — Contract note — Cash bond — Nominee shareholder — Issued share capital — Taxable value

References

• Ding H., Guo, B., & Liu, Z. (2011). Information sharing and profit allotment based on supply chain cooperation. International Journal of Production Economics
• International Business Publication (2012) Equatorial Guinea Company Laws and Regulations Handbook
• Rastogi A. (2009). Claiming Dignity: Reproductive Rights & the Law

Author: Agnieszka Gołuszka