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Share Certificate under Companies Act, 2013

Share simply put is a unit of ownership that represents an equal proportion of a company's capital. Share has been defined in section 2(84) of Companies Act, 2013 according to which it means share in the share capital of a Company and include stocks.
Gurminder Dhami

INTRODUCTION

Share simply put is a unit of ownership that represents an equal proportion of a company’s capital. Share has been defined in section 2(84) of Companies Act, 2013 according to which it means share in the share capital of a Company and include stocks.

Share certificate is an instrument which prima facie gives the title to the person whose name is mentioned there in to the shares.

Being an instrument which is deemed to be evidence of ownership of shares mentioned there in and there being in existence proper provisions in place regarding issuance, transfer, transmission etc. it is important to discuss provisions pertaining to share certificates in line with amendments made to the Companies Act, 2013 and relevant rules made thereunder.

MANNER OF ISSUANCE

Manner of issuance of share certificate has been provided in Section 46 of Companies Act, 2013 read with Companies (Share Capital and Debentures) Rules. As per the aforesaid section Articles of Association of a Company does not have an over-riding effect on provisions pertaining to issue of Share Certificates.

As envisaged in rule 5(1), in case a company issues any share capital, the share certificate can be issued only:

a. in pursuance of a Board resolution; and

b. on surrender of letter of allotment.[A]

The requirement of surrendering the letter of allotment is not applicable in cases of issue of

bonus shares or issue of shares against acceptance/renunciation letter (i.e. situation of right issue).

 

The Procedure in regard to signing of share certificates can be classified as under:-

  • COMPANY WHICH HAS COMMON SEAL

The common seal should be affixed in presence of and the share certificate should be signed by 2 Directors (one of whom shall be non-MD/WTD) authorized by the Board or committee thereof, if so authorized by the Board and Company Secretary or other person authorized by the Board.

In case of OPC (One Person Company), common seal can be affixed in presence of and the share certificate can be signed by a Director or person authorized by the Board and Company Secretary or other person authorized by the Board.

  • COMPANY WHICH DOES NOT HAVE COMMON SEAL

The share certificate should be signed by a Director and Company Secretary, where there is a Company Secretary otherwise it can be signed by 2 Directors (one of whom shall be non-MD/WTD).

In case of OPC (One Person Company) which does not have a common seal, provisions of signing the certificate are the same as they apply to an OPC having common seal except the requirement of affixing the seal.

Under the rules, there is a deeming provision which accepts the validity of printed facsimile signatures of Directors put by means of any machine, equipment, metal engraving, lithography or even affixing digital signature but not rubber stamp. However the responsibility of custody and granting permission of using the aforesaid lies with the Director only.

FORM OF CERTIFICATE

Share certificate shall be as per form SH-1 or as near to as possible which requires mentioning of the following:-

  1. Name of Company, CIN & Registered office address
  2. Nominal and paid up value
  3. Name of holder and no. of shares held
  4. Folio no., certificate no. and distinctive no(s).

TIME LIMIT & ENTRY IN REGISTER

As per Section 56(4) unless prohibited by any law, order of Court or any competent authority, the share certificate shall be issued within following timelines:-

  1. Subscribers: within 2 months from Incorporation
  2. Allotment: within 2 months of allotment
  3. Transfer/Transmission: within 1[B] month of receipt of instrument of transfer (SH-4) or intimation of transmission as the case may be.

Rule 5(4) requires making entry of particulars of every share certificate issued in register of member (MGT-1).

As per regulation 2 of Table F of Schedule I to the Act one share certificate for all shares shall be issued free of cost and thereafter Rs. 20/- shall be charged for each certificate after the first in case of several certificates.

RENEWED/DUPLICATE SHARE CERTIFICATE

  • CIRCUMSTANCES UNDER WHICH ISSUED

Rule 6 contains provisions related duplicate/re-newed share certificate, which can be issued under following situations only on surrender of certificate:-

  1. Defaced, mutilated, decrepit, worn out, torn certificates; or
  2. Consolidation, sub-division, exhausting of place provided for recording transfers

However, requirement of surrendering of certificate will not apply in following cases:-

  1. It is lost or destroyed
  2. On replacement by the Company of all the existing certificates by new upon sub-division, consolidation, merger, demerger or any reconstitution subject to the condition that the issuance shall be in pursuance of a board resolution.
  • MANNER OF ISSUANCE- DUPLICATE CERTIFICATE

In case the certificate is lost or destroyed then a duplicate share certificate shall be issued with prior consent of the board[C] and on:-

  1. Payment of fees[D] not exceeding Rs. 50/-[E] per certificate; and
  2. Providing of evidence, indemnity and payment of out-of pocket expenses incurred in investigating the evidence
  3. Writing on share certificate “duplicate issued in lieu of share certificate No.__”

* Rule 6(2)(c) provides that duplicate share certificate shall be issued on submission of complete documents within 3 months or 45 days as the case may be in case of unlisted and listed companies, respectively.

As per section 46(5) if a duplicate share certificate is issued with intent to defraud the company shall be punishable with minimum fine of 5 times the face value of shares involved and maximum upto 10 times or Rs. 10 crore whichever is higher and officers in default are liable under section 447.

  • MANNER OF ISSUANCE- RENEWED CERTIFICATE

In cases other than of lost/ destroyed, renewed share certificate shall be issued on:-

  1. Payment of fees[F] not exceeding Rs. 50/-[G] per certificate; and
  2. Surrender of old certificate to the Company
  3. Writing on share certificate “Issued in lieu of share certificate No__ sub-divided/replaced/on consolidation”

* The Surrendered Share Certificate shall be immediately defaced by stamping/printing the word “cancelled” in Bold letters (Rule 7(3)).

** As per proviso to rule 6(1) no fee shall be taken in case of issue of renewed share certificate where place provided for recording transfers gets exhausted.

  • REGISTER OF RENEWED & DUPLICATE SHARES

A register in form SH-2 of every renewed/ duplicate share certificate shall be kept at the registered office or such other place[H] where the register of members is kept, containing following particulars:-

  1. Name
  2. & date of issue of old certificate
  3. Suitable cross-reference to the register of members

Entries made in the register shall be authenticated by Company Secretary or such other persons as authorized by board for sealing & signing share certificate.

SHARE CERTIFICATE FORMS AND RELATED BOOKS

  • BLANK SHARE CERTIFICATE FORMS

As per rule 7 all blank Share Certificates should be in printed form and consecutively machine numbered. The Company Secretary or person authorized by the Board shall be responsible for giving account of these forms to the Board.

The custody of books and documents including blank share certificates forms shall be with:-

  1. Company Secretary where there is one, or a Director specifically authorised by the Board if there is no Company Secretary.
  2. Committee of the Board, if so authorised
  • PRESERVATION OF BOOKS

The preservation of books and documents relating to issuance of share certificate shall be done for a period of thirty years. However under following circumstances permanent preservation is required:-

  1. Case of dispute
  2. Register of duplicate share certificate (rule 6(3)(b))
  • DESTROYING SURRENDERED CERTIFICATES

As per rule 7(3) the surrendered share certificate may be destroyed after expiry of 3 years from date of surrender by authority of Board resolution in presence of person authorised by Board in this behalf. However, this shall not apply to share certificates surrendered for dematerialisation as per regulation 54(5) of SEBI (Depositories and Participants) Regulations, 1996.

FOOT NOTES

[A] The requirement of surrendering of letter of allotment is not applicable in case of issue of shares to subscribers to memorandum as the language of rule 5(1) starts with where a company issues any share capital.

[B] In case of listed companies 15 days as per clause 3 and 47(c) of listing agreement.

[C] The Power can be delegated to committee of Board as per general circular 19 /2014 dated 12.06.2014.

[D] As per clause 9(a) of listing agreement fees charged for torn, defaced, lost or destroyed share certificate cannot be more than as agreed with Stock exchange.

[E] Rs. 20/- as per regulation 3 of table F of Schedule I to the Act.

[F] As per clause 8(d) of listing agreement no fees will be charged for old, decrepit, worn-out or where the place for recording of transfer at back of share certificate gets exhausted.

[G] Rs. 20/- as per regulation 3 of table F of Schedule I to the Act.

[H] any place in India where more than one-tenth of total number of members entered in the register of members reside after passing special resolution at a general meeting, advance notice of which has been given to Registrar of Companies.

(Author may be contacted at csgurminderdhami@gmail.com or on his mobile no. +91-8800568609- Suggestions, comments and queries solicited. )

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