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PAYALARORA (Querist)

14 May 2009 wanted to know the difference between firm allotment and reservation??? also the treatment for promoter contribution and reservation of employees in case of designated financial institution??

Vipul J. Bhavsar

Vipul J. Bhavsar (Expert)

14 May 2009 Lets understand it thru an example-
Co. ABC is issuing 1,00,000 equity shares by way of public offering. In the Offer the company has made a declaration that Co.XYZ will be alloted 10,000 shares and an Employee Reservation is made for 10,000 shares. Balance shares are open for the public to subscribe.
In this case shares alloted to Co. XYZ is "Firm Allotment" and "Reservation" is the Employee Reservation mentioned in the offer.The difference between the two is - Incase of Firm allotment Co. XYZ is under obligation to purchase 10,000 shares. The co. will have to buy all the shares. Incase of Employee Reservation the employees of the company are not under obligation to buy the shares. They can buy only if they wish. A specific portion is reserved for the employees as a matter of preference to be given to them. If the employeees doesnt buy all the 10,000 shares the balance shares will be offered to the normal public.

Please elaborate the question related to Promoters contribution and Reservation of employees.