Application Form in Accounting

Definition

An application form is a crucial document issued by a newly floated company alongside its prospectus. It is used by members of the public to apply for shares in the company. Every initial public offering (IPO) typically includes an application form that investors must fill out to subscribe to the company’s shares.

Examples

Initial Public Offering (IPO): When company XYZ decides to go public, it issues a prospectus detailing its financial health and operational strategies. Alongside, it provides an application form for investors interested in applying for shares.
Capital Raising: A startup seeking funding issues shares to the public. Interested investors fill out the provided application form to apply for a stake in the company.
Corporate Expansions: An established private company goes public to fund its expansion. Potential shareholders fill out the application form that accompanies the prospectus to buy shares in the newly public entity.

Frequently Asked Questions

What information is included in the application form?

An application form typically includes the applicant’s full name, address, contact information, the number of shares they wish to buy, and payment details.

Is the application form legally binding?

Yes, upon submission, the application form becomes a legally binding document signifying your intention to buy a certain number of shares at a specified price.

Do I need to read the prospectus before filling out the application form?

Absolutely. The prospectus contains vital financial and operational information about the company, which can inform your investment decision.

Can I withdraw my application after submitting the form?

If the application has not yet been processed, you may withdraw it by notifying the issuing company or the managing underwriter before the closing date of the IPO.

What happens if the shares are oversubscribed?

If the IPO is oversubscribed, the number of shares allocated to each applicant is usually reduced based on the allotment process.

Prospectus

A legal document issued by companies that are offering securities for sale, detailing the company’s financial conditions, operations, and risks.

Allotment

The process of distributing invested shares to the applied investors, often taking place after the subscription period of an IPO is closed.

Initial Public Offering (IPO)

The first sale of stock by a company to the public, transforming it from a private entity into a public one.

Units of ownership in a company that entitle the shareholder to a proportion of the profits.

Securities

Financial instruments that hold monetary value such as stocks, bonds, and options.

Online References

Suggested Books for Further Studies

“Investment Valuation: Tools and Techniques for Determining the Value of Any Asset” by Aswath Damodaran
“The Intelligent Investor” by Benjamin Graham
“Security Analysis” by Benjamin Graham and David Dodd
“Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen
“Valuation: Measuring and Managing the Value of Companies” by McKinsey & Company Inc.

Accounting Basics: “Application Form” Fundamentals Quiz

### What is an application form used for in the context of a newly floated company? - [ ] To file annual taxes - [x] To apply for shares in the company - [ ] To report operational metrics - [ ] To list company assets > **Explanation:** An application form is used by members of the public to apply for shares in a newly floated company. ### What key document is issued alongside the application form? - [ ] Balance Sheet - [ ] Income Statement - [ ] Audit Report - [x] Prospectus > **Explanation:** The application form is issued alongside the prospectus, which provides critical information about the company. ### Which piece of information is crucial to include in an application form? - [ ] The company's market strategy - [x] The applicant's payment details - [ ] The board members' names - [ ] The company's past earnings > **Explanation:** The applicant’s payment details are crucial to complete the transaction for requesting shares. ### How does the application form become legally binding? - [x] Upon submission - [ ] When the company approves it - [ ] After one month of submission - [ ] When shares are allocated > **Explanation:** Upon submission, the application form becomes a legally binding document. ### What does the prospectus contain that is crucial before filling out the application form? - [ ] Tax guides - [ ] Legal regulations - [x] Financial and operational details of the company - [ ] Advertising policies > **Explanation:** The prospectus contains essential financial and operational details crucial for making an informed investment decision. ### What procedure ensures shares are distributed to investors? - [ ] Promotion - [ ] Time-weighted allocation - [x] Allotment - [ ] Underwriting > **Explanation:** Allotment is the process through which shares are distributed to investors. ### How can an applicant withdraw their application if they change their mind? - [ ] By sending an email to customer support after one month - [ ] By notifying the company only after shares are allotted - [x] By notifying the issuing company or the managing underwriter before the closing date of the IPO - [ ] By filing a legal case > **Explanation:** Withdrawal can be done by notifying the issuing company or managing underwriter before the IPO's closing date. ### What happens when the IPO is oversubscribed? - [ ] No shares are allocated. - [ ] Shares are given to applicants based on their request. - [ ] The company's stock price drops. - [x] The number of shares allocated to each applicant is reduced. > **Explanation:** If the IPO is oversubscribed, each applicant typically receives fewer shares than they applied for. ### What type of financial instrument is a share? - [ ] Real estate - [x] Security - [ ] Commodity - [ ] Currency > **Explanation:** Shares are a type of security representing unit ownership in a company. ### Why is it important to read the prospectus? - [ ] To understand current tax laws - [ ] To get tips on stock trading - [x] To gain insights into the company's financial health and operations - [ ] To know about global market trends > **Explanation:** Reading the prospectus provides crucial insights into the financial health and operations of the company.

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