Introduction to “shares” and “share certificate”
According to the provisions of the Companies Act, 2013 (“the Act”), “share” means a share in the share capital of a company and includes stock. [Section 2(84) of the Act]. A share is a part or portion of a larger amount which is divided among or contributed by number of people. It is one of the equal fractional parts into which the share capital of the company is divided.
The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of association of the company (Section 44 of the Act). According to the definition of the “private company”, the articles of association shall contain a provision that restricts the right to transfer its shares.
Share certificate is a document issued by company evidencing that the person named in the certificate is owner of number of shares of company as specified in the share certificate. Share certificate is not a negotiable instrument or warranty of title by the company. According to the provisions of the Act, share certificate issued a company shall specify the shares held by any person and the share certificate shall be prima facie evidence of the title of the person to such shares [Section 46(1) of the Act]. Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.
This article is an analysis of various provisions of the Act and provides a compliance checklist for issuing share certificates to the shareholder of the company.
- Authority to Issue Share Certificate —Where a company issues any share capital, the share certificate of any share(s) held in the company shall be issued in pursuance of a resolution passed by Board of Directors [Rule 5(1) of the Companies (Share Capital and Debentures) Rules, 2014];
- Distinctive Number for each Share —Every share in a company having a share capital shall be distinguished by its distinctive number (Section 45 of the Act). However, the said provisions are not applicable where the shares are held in dematerialised form;
- Details on the Share Certificate —The share certificate shall have following details: (i) name of company, (ii) name of shareholder, (iii) registered office address of the company, (iv) corporate identification number, (v) website of company, if any, (vi) e-mail id of company, if any, (vii) registered folio number, (viii) share certificate number, (ix) distinctive numbers of the shares, (x) paid-up amount per share, (xi) date of issue. Every certificate of share(s) shall be in Form No. SH.1 or as near thereto as possible
[Rule 5(2) of the Companies (Share Capital and Debentures) Rules, 2014];
- Stamp Duty on Share Certificate—The share certificate shall bear requisite stamp duty as per Stamp Act of the State/Union Territory. The amount of stamp duty payable on share certificate shall be determined with reference to the rate indicated in the relevant article specified in the Schedule to the Stamp Act.
- Signatures on Share Certificate (for companies other than One Person Company) —The share certificate, issued under the common seal, if any, shall be signed by two Directors or by a Director and the Company Secretary, wherever the company has appointed a Company Secretary. In case the company has a common seal it shall be affixed in the presence of persons required to sign the certificate. [Section 46(1) of the Act read with Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014];
- Signatures on Share Certificate (in case of One Person Company) —For OPCs, it shall be sufficient if the share certificate is signed by a director and the company secretary or any other person authorised by the Board for the purpose [Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014];
- Director’s Facsimile Signature on Share Certificate—A director shall be deemed to have signed the share certificate if his signature is printed thereon as facsimile signature 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. However, the Director shall be personally responsible for permitting the affixation of his signature and the safe custody of any machine, equipment or other material used for the purpose;
- Corresponding reference in Register of Members—The particulars of every share certificate (as discussed above) shall be entered in the Register of Members;
- Maintenance of Share Certificate Forms and related Books and Documents —(i) 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 of Directors, (ii) blank form shall be consecutively machine numbered and the forms and the blocks, engravings, facsimiles and hues relating to the printing of such forms, (iii) blank forms shall be kept in the custody of the Company Secretary (or such other person as the Board may authorise for the purpose). The said person shall be responsible for rendering an account of these forms to the Board of Directors, (iv) committee of the Board of Directors or appointed Company Secretary or duly authorised Director 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;
- Preservation of Books and Documents relating to Issue of Share Certificates —The books and documents relating to the issue of share certificates (including blank forms of share certificates) shall be preserved in good order for not less than 30 years. However, in certain disputed cases, said documents shall be preserved permanently. 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 3 years from the date on which they are surrendered. Share certificate shall be destroyed under the authority of a resolution of the Board of Directors and in the presence of a person duly appointed by Board of Directors [Rule 7(2) of the Companies (Share Capital and Debentures) Rules, 2014];
- Duplicate Share Certificate —A duplicate certificate of shares may be issued, if: (i) such share certificate is proved to have been lost or destroyed; or (ii) such share certificate has been defaced, mutilated or torn and is surrendered to the company. The company shall comply with the following conditions w.r.t. ( in writing ) the issue of renewed or duplicate share certificate [Rule 6 of the Companies (Share Capital and Debentures) Rules, 2014]:
(i) In case of sub-division, consolidation, replacement (if share certificates are defaced, mutilated, torn or old, decrepit, worn out), the duplicate share certificate shall be issued after the original share certificate is surrendered to the company.
(ii) Company may charge certain fees for issue of such share certificate;
(iii) Company shall make necessary reference (e.g. “duplicate”, “subdivided”, “replaced”, “consolidated”, etc.) on the face of the fresh share certificate and in the Register of Members;
(iv) Prior consent of the Board of Directors and payment of minimum fees (as decided from time to time) is required for issue of duplicate share certificate in lieu of certificates that are lost or destroyed. The Board of Directors shall direct the shareholder to furnish supporting evidence(s), indemnity and the payment of out-of-pocket expenses incurred by the company in investigating the evidence produced;
- Maintenance of Register of Renewed and Duplicate Share Certificates —(i) The company shall maintain Register of renewed and duplicate share certificates (with suitable cross-references to the Register of Members) at its registered office or at such other place where Register of Members is kept. (ii) Register of renewed and duplicate share certificates shall be preserved permanently and shall be kept in the custody of the Company Secretary of the company or any other person authorised by the Board for the purpose. For such authority, the Board shall pass necessary resolution. (iii) All entries made in the said Register of renewed and duplicate share certificates shall be authenticated by the Company Secretary or an authorised person. For such authority, the Board shall pass a resolution;
- Timelines for Issue of Share Certificate —Unless prohibited by any provision of law or any order of Court, Tribunal or other authority, every company shall deliver the certificates of all securities within following timelines:
(i) To subscribers of memorandum of association—within 2 months from the date of incorporation,
(ii) To allotees (shares)—within 2 months from the date of allotment,
(iii) To transferee—within 1 month from the date of receipt of instrument of transfer or intimation of transmission,
(iv) To allotees (debentures)—within 6 months from the date of allotment.
If the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on its allotment [Section 56(4) of the Act].
14. Timelines for Issue of Duplicate Share Certificate —In case unlisted companies, the duplicate share certificates shall be issued within 3 months from the date of submission of complete documents with the company. In case of listed companies, the duplicate certificate shall be issued within 45 days from date of submission of complete documents with the company. [Rule 6(2)(c) of the Companies (Share Capital and Debentures) Rules, 2014]
*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at email@example.com.