Share Application Money Pending Allotment (SAPMA) is a term used in the stock market that refers to the money received by a company from its shareholders before the shares are allotted to them. This money is usually held by the company until the shares are allotted, which can take several weeks or even months. SAPMA is a crucial part of the IPO process, and it helps companies raise the necessary funds to finance their operations.
How does SAPMA Work?
When a company goes public and issues an IPO, it usually sets a price range for its shares. Investors who are interested in buying these shares can apply for them by filling out an application form and submitting it to the company along with the payment. This payment is called the share application money.
Once the IPO closes, the company receives all the applications and the share application money. It then begins the process of allotting the shares to the investors. This process can take some time, and during this time, the share application money is held by the company. This money is usually kept in a separate bank account, and it cannot be used by the company until the shares are allotted.
Why is SAPMA Important?
SAPMA is important for both the company and the investors. For the company, it provides them with the necessary funds to finance their operations and continue to grow. For the investors, it allows them to invest in the company at an early stage and potentially benefit from the growth of the company.
Furthermore, SAPMA is a crucial part of the IPO process. It helps companies gauge the level of interest in their shares and determine the demand for their stock. This information can be used to adjust the price range of the shares and ensure that the IPO is successful.
What Happens to SAPMA if the IPO Fails?
If the IPO fails, the share application money is refunded to the investors. The company cannot use this money for any other purpose, and it must be returned to the investors in a timely manner. However, if the company has already incurred some expenses related to the IPO, such as underwriting fees, legal fees, or marketing expenses, these expenses are deducted from the share application money before it is refunded to the investors.
Conclusion
Share Application Money Pending Allotment is an essential part of the IPO process. It helps companies raise funds to finance their operations and allows investors to invest in the company at an early stage. SAPMA is held by the company until the shares are allotted, and if the IPO fails, the money is refunded to the investors. SAPMA is an important aspect of the stock market, and it plays a significant role in the growth and development of companies.
