Share certificate requirements and procedure

Share Certificate is a document issued by the company to their members who have purchased the shares. The name of the member is written on the certificate explaining the ownership of a number of shares. Moreover, under section 2(84) of the Companies Act, 2013, a share is a share in the share capital of the company including stocks.

Introduction

Prior to April 2014, the procedure of issuing share certificates was governed by Companies (Issue of Share Certificates) Rules, 1960. With the coming into force of Companies (Share Capital and Debentures) Rules, 2014 w.e.f 01 April 2014, the procedure of issuing shares/debentures has been revisited.

The share capital is the major source of fund for a Company apart from other sources such as debentures, loans, etc. A share certificate is a documentary evidence of a number of shares held by an individual in the organization issuing such shares. The document so issued under the common seal of the Company specifying numbers of shares held by any member, is referred as “Share Certificate.”

Details to be provided in a share certificate

Every share certificate issued in India should contain the below mentioned:

1. Name of issuing Company
2. CIN no. (Corporate Identification Number) of such Company
3. Address of the company’s registered office
4. Name of owners of such shares
5. Folio number of member
6. Number of shares which is represented by such share certificate
7. An amount which is paid on such shares
8. Distinct number of the shares

The timeframe for issuing share certificates

After the incorporation of the company, the company needs to issue the share certificates within two months from incorporation date. Where additional shares are allotted to the new or existing shareholders, the share certificates should be issued within two months from allotment date. In a case related to the share transfers, the share certificates should be issued to transferees within a period of one month of receipt of the instrument of transfer by such Company.

Procedures for issuing share certificates

Board Meeting & Allotment of shares

A board meeting is called for deciding about allotment of shares. The board of directors assigns a committee of directors known as allotment committee. The allotment committee would then decide about allotment of shares.

Once allotment committee provides its report with respect to allotment of shares, the Board then approves such report and then passes the resolution for allotting shares to the respective applicants.

Once shares are allotted by the allotment committee, the company secretary sends the letters of allotment to the respective members. The allotment letter refers to a letter that notifies the applicant that the company has allotted a certain number of shares to him. This letter of allotment is considered as the share certificate till issuance of the final certificate.

Register of members

The company secretary then prepares a Register of members from the lists of application received and allotment sheets. Register of member provides information about the shareholders and details of the shares which are allotted to them.

Preparing and Printing Share Certificates

The company secretary must arrange the form of the share certificate according to the form suggested by the Articles of Association. The secretary must get the form printed together with all the required details as per the provisions of the governing law. The secretary needs to fill all the details in share certificate with help of the application register and allotment sheets.

The secretary also needs to ensure that the share certificate is signed by two directors of the company. The secretary needs to sign the share certificate. The secretary also needs to ensure that the company’s seal and revenue stamp is affixed on each of the share certificates. Once certificates are in order, a board meeting is called for passing the resolution for issuing share certificates.

Intimation and dispatch of share certificate

The company secretary needs to inform all the shareholders that share certificates are ready and would be delivered in exchange of allotment letters and bankers receipt confirming payment of the allotment money. A public notice should be issued for the general information of the members. Members who surrender their allotment letters, share certificate are dispatched by the registered post to them. The local shareholders as per their preference can also collect the share certificates personally from company’s registered office or from agency appointed for dispatching the share certificates.

Penalty for breach

Where a company makes any default in complying with provisions relating to issue of share certificates, such company would be punishable with a fine that wouldn’t be less than INR 25,000 but could extend to INR 5, 00,000 and every defaulting officer of such company would be punishable with a fine that wouldn’t be less than INR 10,000 but could extend to INR 1, 00,000.

What are the Contents of Share Certificate?

On the front of the Share Certificate

• Name of the company;
• Corporate identity number;
• Address of the registered office;
• Nominal value per share;
• Amount paid-up per share;
• Register Folio Number;
• Certificate Number;
• Name of the holders (including the joint holders);
• Number of shares held in words and in number;
• Distinctive numbers from to
• Date of issue of share certificate;
• Signatory of directors and secretary/any other authorized person

On the reverse of the Share Certificate

• Name of the Transferor;
• Name of the Transferee;
• Number of shares;
• Date of share transfer;
• Signature of the authorized signatory

The Format of Share Certificate (SH-1)

According to Rule 5(2) of the Companies (Share Capital and Debentures) Rules, 2014, a share certificate is required to be issued in Form SH-1. Although, the rules have given the flexibility to the management to have their own format as near as possible to Form No. SH-1 but keeping in mind following-

• The name of the person in favor it is issued
• The related shares
• Amount paid upper share