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Introduction
This article disccuses share certificate. A company’s capital usually starts with investment by the partners or founders themselves. As the company grows, investment is sought from different sources. A company may invite investments from the general public in exchange of a percentage of ownership in the company in the form of certain rights such as voting rights in the company and the payment of dividends, i.e., a percentage of the profits of the company. This percentage or unit of ownership is called a “share.”
Share Certificate
As per Section 46(1) of the Companies Act, 2013 (“the Act”), a share certificate is a certificate issued under the seal, if any, of the company or signed by 2 directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any person. It shall be a prima facie evidence of the title of the person to such shares.
1. Procedure of Issuing Share Certificate
- A share certificate is issued;
- in pursuance of a resolution by the Board (of Directors) of the company; and
- on surrender, to the company, of the letter of allotment or fractional coupons of requisite value, save in cases of issues against letters of acceptance or of renunciation, or in case of issue of bonus shares.
If the letter of allotment is lost or destroyed, the Board may impose reasonable terms to seek supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investing evidence, as it may think fit.
Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of, and signed by –
- 2 directors duly authorized by the Board for the purpose, or the committee of the Board, if so authorized by the Board; and
- the secretary or any other person authorized by the Board.
If the company does not have a common seal, the share certificate shall be signed by 2 directors, or by a director and the Company Secretary, if appointed by the company. Further, if the composition of the Board permits it, at least one of the 2 directors shall be a person other than a managing director or a whole-time director.
In case of a One Person Company (OPC), every share certificate shall be issued under the seal of the company, if any, which shall be affixed in the presence of and signed by;
- 1 director or a person authorized by the Board for the purpose, and
- the Company Secretary or any person authorized by the Board for the purpose.
If the OPC does not have a common seal, the certificate shall be signed by the persons in whose presence the seal is required to be affixed.
- Signature of Director: A director is deemed to have signed the certificate if his signature is printed as a facsimile signature (i.e., a reproduction) by means of any machine, equipment or other mechanical means such as engraving in metal or lithography, or digitally signed, but not by means of rubber stamp. The director shall be personally responsible for permitting the affixation of his signature and the safety of any machine, equipment or other material used for the purpose.
- Register of Members: The particulars of every share certificate issued in accordance with Rule 5(1) of the Companies (Issue of Share Certificates) Rules, 1960 (“the Rules”) shall be entered into the Register of Members maintained in accordance with Section 88 of the Act, along with the names of persons to whom it has been issued, indicating the date of issue.
2. Form & Contents of Share Certificate
Every share certificate shall be in Form No. SH.1 or as near thereto as possible. It shall specify;
- names of the persons in whose favour the certificate is issued,
- the shares to which it relates and
- the amount paid-up.
In Form No.SH.1, the following must be filled;
- Name of Company
- Corporate Identification Number
- Registered Office Address
- Nominal Value of Shares
- Amount Paid-up per Share
- Register Folio No.
- Certificate No.
- Names of the Holders
- No. of shares held in words and figures
- Distinctive numbers of the shares
- Date of Issue
- Signatures of authorized persons.
3. Shares in Depository Form
A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.
When a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner [Section 46(4) of the Act]. The company shall intimate the details of allotment of securities to depository immediately on allotment of such securities [proviso to Section 56(4) of the Act].
4. Timeframe for Delivery of Share Certificate
Section 56(4) of the Act specifies the time within which the company must deliver the share certificate, unless prohibited by any provision of law or any order of Court, Tribunal or other authority.
- Subscribers to memorandum – within a period of 2 months from the date of incorporation.
- Allotment of any shares – within a period of 2 months from the date of allotment.
- Transfer or transmission – within a period of 1 month from the date of receipt by the company of the instrument of transfer under Section 56(1) of the Act, or as the case may be, of the intimation of transfer under Section 56(2) of the Act.
If the company makes any default in complying with Section 56(4) of the Act, the company shall be punishable with fine of minimum Rs. 25,000 and maximum Rs. 5 lakhs. Every officer of the company who is in default shall be punishable with fine of minimum Rs. 10,000 and maximum Rs. 1 lakh [Section 56(6) of the Act].
Duplicate Share Certificate
A duplicate share certificate can be issued, as per Section 46(2) of the Act, in the following circumstances;
- If it is proved that the original certificate is lost or destroyed.
- Before issuing a duplicate certificate in lieu of those which are lost or destroyed, the Board must consent to such issue and the person seeking such issue must pay such fees as the Board may think fit, not exceeding Rs. 50 per certificate and on reasonable terms such as furnishing supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investigating the evidence produced [Rule 6(2)(a) of the Rules].
- The reason for the issue of the duplicate certificate is stated prominently on the face of it and the word “duplicate” is also stamped or printed on the face of the share certificate. [Rule 6(2)(b) of the Rules].
- The issue is recorded in the Register of Renewed and Duplicate Share Certificate and that it is “duplicate issued in lieu of share certificate No. ……………………………”. [Rule 6(2)(b) of the Rules]
- If the original certificate has been defaced, mutilated or torn and is surrendered to the company.
- Rule 6(1)(a) of the Rules states that a duplicate share certificate can be issued;
- In exchange for certificates which are sub-divided or consolidated.
- As a replacement for certificate which is defaced, mutilated, torn or old, decrepit or worn out.
- Where the pages on the reverse for recording transfers has been utilised.
- The duplicate certificate is issued only after the certificate in lieu of which the duplicate is to be issued must be surrendered to the. The company may charge such fee as the Board thinks fit, not exceeding Rs.50 per certificate issued on splitting or consolidation of share certificates or in replacement of share certificates that are defaced, mutilated, torn or old, decrepit or worn out. [Proviso to Rule 6(1)(a) of the Rules]
- The reason of issue is stated on the face of the duplicate certificate and recorded in the Register of Renewed and Duplicate Share Certificate. It is also recorded that the duplicate certificate is “Issued in lieu of share certificate No. …………………….. sub-divided/replaced/consolidation” and also that no fee shall be payable pursuant to scheme of arrangement sanctioned by the High Court or Central Government.
All certificates surrendered to a company shall immediately be defaced by stamping or printing the word “cancelled” in bold letters and may be destroyed after the expiry of three years from the date on which they are surrendered, under the authority of a resolution of the Board and in the presence of a person duly appointed by the Board in this behalf. [Rule 7(3) of the Rules]
1. Timeframe for Delivery of Duplicate Share Certificate
- Unlisted Company – within 3 months from the date of submission of complete documents to the company
- Listed Company – within 45 days from the date of submission of complete documents to the company. [Rule 6(2)(c) of the Rules]
2. Register of Renewed and Duplicate Share Certificate
- This Register is maintained in Form No.SH.2 and records the particulars of every duplicate share certificate issued under Rule 6. The record must indicate the names of the persons to whom the certificate is issued, the number and date of issue of the share certificate in lieu of which the duplicate certificate is being issued and the necessary changes in the Register of Members by suitable cross-references in the “Remarks” column. [Rule 6(3)(a) of the Rules]
- The register is kept at the registered office of the company or at such other place where the Register of Members is kept and it shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. [Rule 6(3)(b) of the Rules]
- All entries shall be authenticated by the company secretary or such other person as may be authorised by the Board for the purposes of sealing and signing the share certificate under the provisions of Rule 5(3). [Rule 6(3)(c) of the Rules]
Maintenance of Share Certificate Form and Related Books and Documents
Rule 7 of the Rules prescribes the manner in which blank share certificate forms and related books and documents are to be maintained by the company.
- All blank forms to be used for issue of share certificates shall be printed and the printing shall be done only on the authority of a resolution of the Board. The blank forms are to be machine-numbered.
- The forms and the blocks, engravings, facsimiles and hues relating to the printing of such forms shall be kept in the custody of the secretary or such other person as the Board may authorize for the purpose. Such person will also be responsible for rendering an account of these forms to the Board.
- The following persons shall be responsible for the maintenance, preservation and safe custody of all books and documents relating to the issue of share certificates, including the blank forms of share certificates;
- The committee of the Board, if so authorized by the Board, or where the company has a company secretary, the company secretary; or
- Where the company does not have a company secretary, a director specifically authorized by the Board for such purpose.
- All books shall be preserved for not less than 30 years, and in case of disputed cases, shall be preserved permanently.
Conclusion
There are various Rules and procedures that a company must comply with before issuing a share certificate or a duplicate share certificate. The company is responsible to extract all relevant information from the shareholder and to thoroughly check the information before issue.
