When shares are oversubscribed, the promoters may decide to scale down. When this is done, the shares are issued proportionately

Answer Details

When a company issues shares and they are oversubscribed (i.e., more people want to buy shares than the company has available), the company may decide to scale down the number of shares each applicant is allocated. Scaling down is the process of reducing the number of shares to be issued to each applicant in proportion to the number of shares they applied for. This means that everyone who applied for shares will get a percentage of the shares they applied for, rather than receiving nothing at all or only a portion of the shares they applied for. This is known as issuing shares proportionately or on a pro-rata basis. The exact proportion of shares that each applicant receives is based on the total number of shares applied for and the number of shares available for issue.