This article has been written by Ms.Anita Mariya,student studying BBA LLB from Government Law College Thrissur.The Author is a 5th year Law student.

History of the Law

A certificate issued by a company should be prima facie proof of the title of the person to such shares, as stated in the notes to the clause of the Companies Bill, 2011. This clause relates to section 84 of the Companies Act, 1956. It lays out the process for issuing replacement share certificates and the information that must be included in the membership roster. Penal laws for fraud would be invoked if a firm issued duplicate shares with the aim to mislead the public. To own a portion of a company, one must have shares, which are certificates issued by the company. 

Shareholder information and the number of shares owned are the only things included on a share certificate. It has nothing to do with the actual worth of the stock. If a shareholder owns shares in more than one asset type, they will receive numerous certificates from the issuing company.

In order to prevent forgery, all certificate-issuing businesses use elaborate designs. Now that you know what share certificates are, we can move on to discussing the various features of them.

Importance of share certificate

Share certificates serve primarily as a record of ownership for each shareholder. It aids businesses in keeping track of legitimate shareholders and eliminating fake ones.

When there are changes in the ownership of shares, the company must promptly update the information on this certificate. Take the case of an investor who buys 200 shares of a single firm as an example. A few weeks later, he sells 50 of his shares. Two hundred of the same company’s shares are added to his portfolio later. These certificates need to represent every single transaction accurately. It’s useful for checking and balancing books.

Issues of share certificate

There are typically three instances where a company will issue a share certificate. In such cases, new shares may be issued and then subscribed for. Also, share certificates must be issued whenever there is a transfer of shares between shareholders, whether that transfer is horizontal or vertical.

In addition, if a shareholder loses or damages their certificate, they can seek for a replacement. As we can see, a stock certificate has value for both shareholders and businesses.

Every corporation has its own unique procedure for creating stock certificates. After two months of its establishment, an Indian company can begin issuing share certificates, as required by the country’s Registrar of Companies.

Whenever a corporation issues new shares to current or new investors, the certificate must be issued no later than two months after the day the shares were allotted.Whereas, within one month of receiving the transfer instrument from the entities concerned, the firm is required to issue a stock certificate in the right format to transferees in the event of a transfer of shares.

What does Share certificate include?

A share certificate typically includes the following information: the name of the issuing company; the registered address of the firm; the full name of the respective shareholder; the corporate identification number (CIN) of the company; the folio number of the shareholder; the number of shares purchased by the individual; the difference between the number of shares bought and the amount spent to purchase the shares; the name of the individual who purchased the shares.

Distribution procedures

Some of the most crucial procedures that corporations go through while issuing stock are as follows:

• Gather the Board Together

The first order of business is to hold a board meeting at which all relevant members can discuss the possibility of a new share allotment. The board of directors of the corporation would form a share allocation committee to handle all crucial aspects of the allotment.A report will be written and presented to the board. The board would then accept the report and distribute new shares to shareholders. The company secretary will notify persons through letter of the issuing of shares after they have gained approval for share subscription.Until the corporation issues permanent certificates, this letter will do as proof of ownership.

• Membership Signup

The business will then compile a register detailing each stakeholder and their respective shareholdings. The price that shareholders forked over to receive their shares will also be included.

• Certificates Printing

In this phase, the company secretary will prepare stock certificates in the format specified in the firm’s Articles of Association (AOA). This certificate must be filled out completely and accurately.Each stock certificate must be signed by at least two Directors, and it is the responsibility of the company secretary to make sure this happens. The share certificate also requires the signature of the corporate secretary. In addition to this, the company’s official stamp must appear on every certificate.

• Dispatching Information

Once certificates have been sent out, the company secretary will notify the shareholders individually. You can reach the secretary at her office number, by text message, or at her work email address.Certificates can also be picked up from the company’s registered office by local shareholders.

Instructions for Replacing a Lost Stock Certificate.

If you require a replacement stock certificate, please follow these procedures.

1. report the theft or loss of the stock certificate by filing a First Incident Report (FIR) with the police. A copy of the FIR should be kept for reference.
2.  Submit an application to the corporation stating that the original share certificate has been lost or stolen. Please include the FIR as part of your application materials.
3. you’ll need to cover the expense of a replacement share certificate by issuing an indemnity bond to the corporation in the amount of Rs. 200.
4. the application will be reviewed by the board of directors, who may vote to accept or reject it.
5.  If the firm grants your request, you’ll have 15 days to file an objection to the company issuing duplicate certificates to you. If no one objects, the firm will issue identical duplicate certificates.

The advantages of issuing stock certificates include the following:

It proves that you possess a certain number of shares of a firm as of a certain date; it helps companies maintain track of legitimate shareholders; it allows for more efficient dividend distribution; investors may use it in financial planning to gain an estimate of their effective rate of return.

The following are a few drawbacks of this certificate:

This takes a lot of time and effort and is quite resource intensive. Paper certificates are expensive to produce and deliver, and they do little more than confirm a shareholder’s claim to a specified number of shares. These certificates are not transferable between shareholders, and shareholders can sell or give away their certificates without notifying the corporation. This creates more administrative work for businesses since they need to keep track of all these transfers.

Conclusion

A share certificate is a legally binding document that verifies the holder’s claim to a specific number of shares of stock. Share certificates are an efficient instrument for business management since they provide benefits to shareholders as well as the firm.

References

1. Indiainfoline.com
2. Investopedia.com
3. Cleartax.com