A share certificate is a certificate issued by the company under its common seal specifying the shares held by any member and the amount paid on each Share. A share certificate is evidence of title of the allottee or transferee to the shares. It is a declaration that the person in whose name the certificate is made out ant to whom it is given, is a shareholder in the company. Share certificate is not ‘ a negotiable instrument. Thus, the share certificate is a statement by the company that the moment when it was issued, the person named in it was the legal owner of the shares specified in it, and those shares were paid-up to the extent stated.
The face value or nominal value of shares mentioned on the share certificate must be as per the Memorandum of Association and Articles of Association of the Company. Shares of a company not listed on any stock exchange can have a nominal value of Rs.1, or Rs.10, or Rs.100 or Rs.1000 as per the requirements of the promoters. Shares listed on any stock exchange but not in DEMAT form should have a face value of Rs.10.
Distinctive Numbers for Share Certificates:
Face Value of Shares:
According to Section 45 of the Companies Act, 2013 each share of the share capital of the company shall be distinguished with a distinct number for its individual identification. However, such distinction shall not be required, as per proviso to Section 45, if the shares are held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository (DEMAT Form)
Prima facie Evidence of Title:
According to Section 46(1) of the Act, a certificate, issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.
Provision for Duplicate Share Certificates:
Section 46 (2) states that a duplicate certificate of shares 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.
Format of Share Certificate:
Every certificate of share or shares shall be in Form No. SH.1 or as near thereto as possible. The particulars of every share certificate issued shall be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No.SH.2
All share certificate of a company-issued in India must have the following information mentioned on the share certificate.
- The share certificate should be issued in Form SH-1 or any document that resembles Form SH-1
- Name of the Company
- CIN Number of the Company
- Registered Office of the Company
- Name of the owners of the shares
- Folio number of the member
- Number of shares represented by the share certificate
- Amount paid on the shares
- Distinctive number of shares
- Number of share certificate
- Issue Date
- Kind of Shares
Issuing Share Certificates
Section 56 (4) of the Act lays down specific time limits within which share certificates are to be delivered – whether at the time of allotment or transfer or transmission as under:
Every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted–
- within a period of two months from the date of incorporation, in the case of subscribers to the memorandum;
- within a period of two months from the date of allotment, in the case of any allotment of any of its shares;
- within a period of one month from the date of receipt by the company of the instrument of transfer under sub-section (1) or, as the case may be, of the intimation of transmission under sub-section (2), in the case of a transfer or transmission of securities;
- within a period of six months from the date of allotment in the case of any allotment of debenture;
- in case of DEMAT securities, the company shall intimate the details of allotment of securities to depository immediately on allotment of such securities.
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.
Effect of Issue of Share Certificate:
A share certificate once issued by the company binds it in two ways, namely:
- by estoppel as to title, and
- by estoppel as to payment
Estoppel as to Title:
According to Section 46(1) of the Act, a certificate under the common seal of the company is prima facie evidence of the title of the person to the shares specified therein. In other words, the company is estopped from denying his title to the shares.
In Re. Bahia & San Francisco Railway Co., (1868) L.R. 3 Q.B. 584 case, where a shareholder left her share certificates with her broker. A forged transfer of same was lodged with, and registered by the company. The share certified the person named therein as a registered holder. The shares were then sold to innocent purchasers, who in turn lodged the transfers and obtained share certificates in their own names. Though the company agreed to restore original shareholder’s name to register of members, it refused to recognize innocent purchasers as members. the Court held that share certificate 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. The Court further ordered that the bonafied purchasers were entitled to recover from the company the market price of the shares at the time when they were deprived of them.
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 share certificate in respect of shares of the face value of Rs. 10 states that Rs. 8 has been paid in respect of such shares, but actually only Rs. 6 are paid by the holder to the company. This creates an estoppel against the company, and company can recover only Rs. 2 from the holder and not Rs. 4.
In Burkinshaw vs Nicholls (1877), 3 App. Cas.1004 case, the Court held that where a company issues a certificate to the effect that certain shares were fully paid up, it may be estopped from denying their being paid up as against anyone acting upon such certificate in good faith.
In Bloomenthal v. Ford, 1897 AC 156 case, the company borrowed money from B and as security gave him share certificates for10,000 shares of 1 pound each in his name in which the shares were described as fully paid. B believed that the amount due on shares had been paid by a previous holder. But this was not true. The company went into liquidation and the liquidator claimed from the amount due on his shares. The Court held that the company was estopped by its own statement on the certificate that the shares were fully paid. The claim must fail.
Advantages of Issuing a Share Certificate:
- The issuance of share certificates allows companies to keep track of their shareholders, which is needed when the company calls a board meeting or distributes dividends.
- it also brings transparency in the process of investing as the share certificates contain all the important details about the transactions.
Disadvantages of Issuing a Share Certificate:
- A major disadvantage is the tedious clerical work which demands time and money on the company’s part.
- In case the share certificates are physically issued, they can get lost or stolen, forcing the company to repeat the process of issuing share certificates to the shareholders.
Duplicate Certificates:
Duplicate share certificate(s) are issued in lieu of defaced/damaged share certificates. The defaced/damaged share certificates may be sent with a request letter along with relevant information to facilitate issue of duplicate certificate(s).
Section 46(2) of the Act, lays down that a duplicate certificate of shares 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. The fact of being a duplicate share certificate must be mentioned on the certificate.
Section 46(5) of the Act, lays down that if a company with intent 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 and every officer of the company who is in default shall be liable for action under section 447.
Conclusion:
A share certificate is a certificate issued by the company under its common seal specifying the shares held by any member and the amount paid on each Share. A share certificate is evidence of title of the allottee or transferee to the shares. A company must issue share certificate whether the shares are partly paid up or fully paid up. A share certificate once issued by the company binds it in two ways, viz: a) by estoppel as to title, and b) by estoppel as to payment