Initial Public Offering (IPO) is the process of conversion of a privately held firm into a public firm by trading its shares. When a company issues an IPO, the interested investors file an application to buy the shares.

These applications are easily available on NSE/BSE websites or can be collected from the banks. Most of the time, a large number of applications are received and hence the allocation of shares goes through a systematic procedure.

It is commonly seen that not all investors are allotted the same number of shares in an IPO which they applied for. To understand the reasons for this, it's imperative to first know what a ‘lot size’ is.

**What is the lot size?**

The total number of shares that a company plans to issue are divided into a fixed number of shares known as ‘lots’ and the investors make their bids accordingly. For example, if a company decides to offer 1,000 shares with a lot size of 10 then, the total number of lots will be 1000/10 i.e. 100 lots. The investors will decide how many lots they want to bid for. The bidding cannot be done for shares less than a lot size, as per the guidelines laid by the SEBI.

**Elimination Procedure**

All the applications for the shares are registered online once a firm issues an IPO in the stock exchange. The erroneous applications that were entered improperly are then removed from the total number of bids using an online process. And hence, we receive the total number of successful bids for the given IPO.

In this case, there can be two situations-

- The final number of lots applied by all the investors is less than the total number of lots offered by the company.
- The final number of lots applied by all the investors is more than the total number of lots offered by the company.

**Number of lots subscribed is less than what is offered**

If the number of successful lots submitted by all applicants combined is less than or equal to the total number of lots offered then everyone is allocated the number of shares they had applied for.

**Number of lots subscribed is more than what is offered**

If the number of successful lots submitted by all applicants combined exceeds the number of shares available, then the share allocation procedure will require extra planning. According to the guidelines laid by the Securities and Exchange Board of India (SEBI) , each person who has applied should get at least one lot.

Thus, the allocation of shares after an IPO is a rigorous procedure and its outcome relies on the number of times the issue was oversubscribed. And in case of over subscription, an investor subscribing to an issue stands to receive far less shares that they applied for.