Shares are units that state the proportion of a shareholder’s ownership in a corporation or financial asset. Through shares, a shareholder can claim rights to an equal distribution of the company’s profits (if any) declared in the form of dividends. The two main categories of shares include common shares and preferred shares.
Let’s understand the concept of share certificates in further detail.
A share certificate is a written document issued by a company to act as legal proof of ownership of the number of shares as specified in the certificate. It can also act as a receipt towards the purchase and ownership of shares of a company. In simple words, it certifies the shareholder with registered ownership of shares starting at a particular date.
Here are the different situations which require the issuance of share certificates:
- Incorporation: A share certificate is issued to subscribers of the Memorandum of Association within 2 months from the date of a company’s incorporation.
- Allotment: A share certificate must be issued within 2 months from the allotment of shares.
- Transfer: It can be issued by the concerned company within 1 month from receiving an instrument of transfer.
After buying the shares of a company, the company may issue share certificates which act as a proof of ownership of the investor in the company. In today’s digital age, however, one can prove stock ownership without actually holding a physical share certificate. Since shares are held in Demat form now, companies do not have to issue share certificates automatically. However, if an investor wants to have a share certificate, he/she can request the company to issue the same.
Mentioned below are some of the conditions that have to be met before or while issuing a share certificate:
- A company must provide one certificate to one shareholder for all his/her shares without seeking any additional charges.
- In case a shareholder requires more than one certificate for one or more shares held, then the company can issue multiple certificates. However, this comes with a payment of Rs. 20/- for each additional certificate post the issue of the first original certificate.
- If shares are being held jointly by more than one person, the Company is not bound to issue multiple certificates. The delivery of a single certificate for shares held by several joint holders is considered sufficient.
- To issue share certificates, there should be an allotment or subscription during the company’s incorporation.
- A board resolution should be passed in a board meeting for an issue of share certificates.
A company is required to provide one share certificate to a member for all of his/her shares without any fees or charges. In case a shareholder asks for more than one certificate, then the company may issue additional shares by seeking payment of Rs.20 per each additional share certificate.
The prepared share certificates should meet the standards stated above and should be issued with the signatures of two directors or company secretary or an authorized signatory appointed by the Board of Directors.
The share certificate has to be issued from the company’s registered office and upon stamp duty payment towards the issue of share certificate must be made as per the Stamp Act of the State. Once the share certificate is issued, the company must enter the details of the same into the Register of members maintained under Section 88 of the Companies Act, 2013. Along with this, the name of the person to whom the share certificate was issued and date of issue should be mentioned.
The face value of shares, also known as nominal value, should be mentioned on the share certificate as per the Memorandum of Association and Articles of Association of the Company. If the shares of a company are not listed on any stock exchange, the same can have a nominal value of Re.1, Rs.10, Rs.100 or Rs.1000 depending on decisions taken by the company promoters.
Shares that are listed on a stock exchange but are not in DEMAT form must carry a face value of Rs.10. Debentures that are listed on a stock exchange but are not in DEMAT form must carry a face value of Rs.100/-.
Share certificates must be issued in Form SH-1 or any document resembling Form SH-1. Any share certificates issued in India must carry the below-mentioned information:
- Company name
- Company CIN number
- Registered office of the company
- Name of the share owners
- Member’ Folio number
- Total number of shares represented by the share certificate
- Amount paid for the shares
- Number of the share certificate
A company can issue a fresh share certificate by consolidating, splitting, or replacing old certificates.Fresh share certificates can be issued in the following conditions:
- If a share certificate is sub-divided, consolidated.
- As replacement for certificates that are defaced, damaged, torn or old, decrepit or worn out.
- In case the pages on the reverse side of the certificate meant for recording transfer have been duly utilized.
Conclusion
Any default by the company in complying with the provisions on issuance of share certificates results in a fine of minimum Rs. 25,000 and maximum Rs. 5 lakhs. Each defaulting officer of such a company is punishable with a fine of minimum Rs. 10,000 and maximum Rs. 1 lakh.
FAQs
A share certificate is a document that acts as a legal proof of specified share ownership signed on behalf of a corporation. It is also referred to as a stock certificate.
Shares are units representing equity ownership in a corporation. These are a form of financial asset that allows the owner to claim an equal distribution in residual profits of the company, if any are declared as dividends. Shareholders can also fetch capital gains in case the company’s value rises.
To buy and invest in shares in India, you need to have a Demat account along with a trading account. These can be easily opened with the help of an online broker platform. Once these accounts are set up, you can buy or sell shares in the open market.
The main objective of companies issuing shares is to raise capital. This is mainly required for carrying out the business operations, expansion, etc. Investors invest in shares to get a part ownership in the company.
