What is a share certificate?
- A share certificate is a certificate issued to the members by the company, specifying the number of shares held by him and the amount paid on each share.
- As per section 46(1) company shall issue share certificate under common seal.
- It is pa prima facie evidence of "person of tittle".
- Section 46(4) states that 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.
When can a company issue Duplicate Share Certificate?
As per Section 46(2) a duplicate share certificate may be issued, if such certificate —
(a) is proved to have been lost or destroyed; or
(b) has been defaced, mutilated or torn and is surrendered to the company.
Manner of issuing share certificates or duplicate share certificates -
Section 46(3) states that notwithstanding anything contained in the articles of a company, the manner of issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.
Maintenance of share certificate forms and related books and documents [Rule 7 of Companies (Share Capital and Debenture) Rules, 2014] -
(i) Printing of all blank forms to be used for issue of share certificates shall be done only on passing board resolution by board of directors.
(ii) 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,
- 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 has no Company Secretary, a Director specifically authorised by the Board for such purpose.
(iii) All books mentioned above shall be preserved in good order not less than 30 years and in case of disputed cases, shall be preserved permanently,
(iv) 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 by passin board resolution, in the presence of a person duly appointed by the Board.
Punishment for issuing duplicate share certificates to defraud -
As per Section 46(5), if a company with an intention to defraud, issues a duplicate certificate of shares, the company shall be punishable with -
fine : which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher
every officer of the company who is in default shall be liable for action under section 447, for fraud.
Time limit for issue of Certificate of Securities -
As per Section 56(4) of the Act, every company, unless prohibited by any provision of law or any order of any Court, Tribunal or other authority must deliver the certificates of all securities allotted, transferred or transmitted -
(a) within a period of 2 months from the date of incorporation, in the case of subscribers to the memorandum.
(b) within a period of 2 months from the date of allotment, in the case of any allotment of any of its shares.
(c) within a period of 1 month from the date of receipt by the company of the instrument of transfer or, as the case may be, of the intimation of transmission, in the case of a transfer or transmission of securities.
(d) within a period of 6 months from the date of allotment in the case of any allotment of debenture.
However, where the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
What is Split Certificate?
A split certificate means a separate certificate claimed by a shareholder for a portion of his holding. The advantages of a split certificate are that the shareholder may benefit in case of a transfer by way of sale or mortgage in small lots and the right to multiply the certificates into as many shares held by the shareholder.
Significance of Share Certificate -
- It is prima facie evidence of "person of tittle".
- It is showing the number of shares held by him and the amount paid on each share.
- Comapny is bound by any statement made in the share certificate.
- It is the only documentary evidence of title and that the share certificate is a declaration by the company that the person in whose name the certificate is issued is a shareholder in the company.
- Also the company cannot dispute the amount mentioned on the certificate as already paid.
Legal Effect of Share Certificate -
We have already stated that a share certificate is prima facie evidence to the title of the person whose name is entered on it. A share certificate once issued by the company binds it in two ways, namely:
(a) by estoppel as to title : A share certificate once issued binds the company in two ways. In the first place, it is a declaration by the company to the entire world that the person in whose name the certificate is made out and to whom it is given is a shareholder in the company. In other words the company is estopped from denying his title to the shares.
(b) by estoppel as to payment: If the certificate states that on each of the shares full amount has been paid, the company is estopped as against a bona fide purchaser of the shares, from alleging that they are not fully paid.
If a person knows that the statements in a certificate are not true, he cannot claim an estoppel against the company Barrow.
Personation of Shareholders [Section 57]
Where any person deceitfully personates as an owner of any security or interest in a company, or of any share warrant or coupon issued in pursuance of this Act, and
(i) Obtains or attempts to obtain any such security or interest or any such share warrant or coupon, or
(ii) Receives or attempt to receive any money due to any such owner.
He shall be punishable with imprisonment for a term which shall not be less than 1 year but which may extend to 3 years and with fine which shall not be less than 1 lakh rupees but which may extend to 5 lakh rupees.