Explanation

When shares are over-subscribed, directors may scale down shareholding by allotting shares on a pro-rata (proportional) basis. This ensures fair distribution among all applicants based on the number of shares each person applied for.

Over-subscription occurs when the public applies for more shares than the company is offering. For example, if a company offers 100,000 shares but receives applications for 200,000 shares, it is over-subscribed by 100%.

With pro-rata allotment, if someone applied for 1,000 shares and the over-subscription is 100%, they would receive 500 shares (half of what they applied for). Everyone receives the same proportion of their application.

Discount, par, and premium refer to the price at which shares are issued (below, at, or above face value), not to the method of distributing shares when over-subscribed. Pro-rata is Latin for “in proportion.”