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Sunday, May 11, 2014

Share Certificate and Share Warrant

Share certificate (section 113): It is a document which certifies that the allottee is the holder of specified number of shares in the company. It is a document of title also. It is not a negotiable instrument because it is not transferable. According to section 84, a share certificate shall be:

Ø  Prima facie evidence of the title of the member to such shares.

Ø  Estoppel as to title: company cannot deny the fact that the person is not holder of the shares.

Ø  Estoppel as to payment: company cannot deny the fact that the shares are not paid up if in share certificate the shares are fully paid up.

Procedure for Issue of Share Certificate
No share certificate shall be issued except:
(i)      In pursuance of a resolution of the Board of Directors.
(ii)    On surrender to the company of the letter of allotment, except in case of issue against letter of acceptance or of remuneration, or in case of issue of bonus shares.

Procedure: The Company undertakes the following procedure for issue of share certificate.

1.       The Board of Directors before issuing a share certificate must pass a resolution to its effect the letter of allotment or fractional coupons of required values should be surrendered to the company. when such type of documentary evidence are not available due to the same having been lost or destroyed, the board should prescribe such conditions as regards to indemnity & payment of incidental expenses which is important for the company to incur in finding out the evidence for the purpose of proving the title of the shares.

2.       A share certificate will not be issued in exchange of consolidated or sub-divided shares or in place of torn, defaced old shares or where cases in the reverse for recording in lieu of which unless the certificate of which it is issued has been surrendered to the company.

3.       In every certificate the name of person should be mentioned who is the owner of the share to which the certificate relate and the amount paid up.

4.       The duplicate share certificate must not be issued in place of the lost or destroyed share without the consent of the board.

5.       Where a certificate has been issued in the place of old certificate, this fact must be shown on the face of the certificate.

6.       All the books and documents relating to the issue of share certificate must be under the safe custody of the managing Director and the other directors of the company.

7.       All the forms required for the purpose of the issue of share certificate must be printed under the authority of the Board and person appointed by the board should have the custody of all blocks and other equipment of printing.

8.       The issued share certificate must possess the common seal of the company which must be affixed in the presence of director or any other person appointed for the purpose by the Board. Share certificate should be signed by the persons mentioned above. One of the two directors must be a person other than the managing or whole time director.

9.       When a certificate is issued in lieu of one lost or destroyed, it must contain the statement “Duplicate issued in lieu of certificate No….”  In addition to the duplicate shall be stamped or punched in bold letter across the face of the share certificate.

10.   Matter relating to the certificate issued under rule 4(1) must be entered on the Register of members against the name of persons and in whose favour the certificate have been issued, also mentioned the date of issue. In the same way entries relating to Rule 4(2) and (3) must be mentioned in the register. Both these categories should be approved either by the secretary or by a person appointed by the Board (Rule 7)

                 Time Limit for issue of Share certificate:
1.       In case of allotment, within 3 months of the allotment.

2.       In case of transfer, within 2 months.
In both the above cases the time limit can be increased to up to 9 months by get it sanctioned from the Company Law Board.

Share Warrant
Share warrant us a document issued by the company limited by shares, if so authorized by its Articles. The warrant is issued under the common seal of the company and states the owner of the warrant is entitled to the certain number of shares specified therein. As it is a bearer document, it can be transferred by mere delivery.

According to section 114 of the companies Act, the share warrant can be issued only after getting permission from the Central Government. The share warrants are issued only in respect of the shares, which are fully paid up. For the payment of the future dividend the dividend Coupons are attached with share warrant. When the Share warrant is issued by the company, the company immediately will strike out from its register of members, the name of the member in whose name the share warrant has been issued.

According to section 115, the following points should be recorded in the register of members upon the issue of the share warrant:-
1.       The date on which the share warrant has been issued.
2.       The reason for the issue of the share warrant.
3.       A statement of the shares specified in the warrant, distinguishing each share by its number.

Difference between Shares warrant and share certificate
1.       A share warrant can be issued only by pubic companies. A share certificate, on the other hand may be issued be pubic as well as private companies.

2.       Issue of share warrant requires provision in the articles and also approval from the C.G., It is not necessary in case of share certificate.

3.       A share warrant can be issued only with respect to fully paid up shares. Whereas a share certificate can be issued at any stage.

4.       The holder of share certificate is a member of the company. Holder of share warrant is not member of the company unless article authorized him for particular purpose.

5.       A share warrant can be transferred by mere delivery and no registration of transfer with the company is required, transfer of shares in not complete unless re-registered by the company.

6.       No stamp duty is payable in transfer of a shares warrant whereas stamp duty is payable on transfer of shares.

7.       A share warrant is transferable as negotiable instrument. A share certificate is not so considered.

Is the bearer of share warrant a member of the company?
The bearer of a share warrant is not a member of the company [section 2(27)]. However, if company’s Articles of Association so provide, he may be treated as a member of the company for any purpose defined in the Articles [section 115(5)]. Thus, the Articles may provide that the bearer of a share warrant shall be allowed to exercise the rights of a member, such as attending meetings, approving annual accounts, appointing directors, etc. But, having regard to the express provisions of section 270(4), the Articles of Association of a company cannot provide that the shares specified in a share warrant may be considered as qualification share for the office of a director.

Re-conversion of Warrant into shares:
A share warrant may, at any time be surrendered by the holder to the company for cancellation, and his name can again be entered into the register of members, provided the Articles do not prohibit such conversion and the fee prescribed by the Board of Directors for the purpose is paid [section 115(2)]
In the event of such conversion, if the company enters the name of a bearer of a share warrant in respect of shares therein specified, without the warrant being surrendered and cancelled, the company shall be responsible for any loss that may be occasioned to any person in this regard [section 115(3)]
On surrender of the share warrant, the date of the surrender shall be entered in the register of members. [section 115(4)].