This article has been written by Mr. Hemant Kumar, a 2nd year LL.B student from Faculty of Law, Delhi University.
Introduction:
Shares are units of ownership in a company that represents a portion of the company’s capital. They are an essential component of a company’s structure as they help to raise funds for the company’s operations and expansion. The process of numbering shares is critical to identify the number of shares that a company has issued and the ownership of those shares. It also plays a significant role in determining the value of shares and calculating dividends. This article will discuss the process of numbering shares, the types of shares, various examples, and different case laws.
Process of Numbering Shares:
The process of numbering shares involves assigning unique numbers to each share issued by a company. The numbering system typically follows a specific format, including a prefix or suffix that identifies the company and a unique number that identifies each share. For example, a company may use the prefix “ABC” to identify its shares and assign each share a unique number such as 001, 002, and so on.
The process of numbering shares is essential to maintain accurate records of the shares issued by a company. It helps to track the ownership of shares and enables the company to pay dividends to the shareholders accurately. Additionally, the process of numbering shares is necessary for corporate actions such as mergers, acquisitions, and share buybacks.
Types of Shares:
There are various types of shares that a company may issue, including common shares, preferred shares, and treasury shares. The numbering of shares may differ based on the type of share issued.
Common Shares:
Common shares are the most common type of shares issued by a company. They represent ownership in a company and entitle the shareholder to a portion of the company’s profits through dividends. The numbering of common shares typically follows the same numbering system as other shares issued by the company.
Preferred Shares:
Preferred shares are a type of share that gives shareholders priority over common shareholders when it comes to dividends and other corporate actions. The numbering of preferred shares may differ from common shares to distinguish between the two types of shares.
Treasury Shares:
Treasury shares are shares that a company has repurchased from its shareholders. They are not outstanding and do not represent ownership in the company. The numbering of treasury shares may differ from other shares to identify them as treasury shares.
Various Examples:
Example 1: Company A issues 10,000 common shares, and the numbering system is as follows: A001, A002, A003, and so on.
Example 2: Company B issues 1,000 preferred shares and 10,000 common shares. The numbering system for preferred shares is BPR001, BPR002, and so on, while the numbering system for common shares is B001, B002, and so on.
Example 3: Company C repurchases 500 shares from its shareholders. The numbering system for treasury shares is CTS001, CTS002, and so on.
Case Laws
Case Law 1: Companies Act, 2013
The Companies Act, 2013, is the primary legislation governing the formation and operation of companies in India. Section 44 of the act specifies the rules related to the numbering of shares. Every share issued by a company must have a distinctive number. Additionally, the act requires companies to maintain a register of members that includes the details of the shares held by each member.
In a recent case, the National Company Law Tribunal (NCLT) ordered a company to cancel its shares that were not numbered correctly. The NCLT found that the company had issued shares without assigning them a distinctive number, which violated the Companies Act, 2013.
Case Law 2: The Companies (Share Capital and Debentures) Rules, 2014
The Companies (Share Capital and Debentures) Rules, 2014, specify the rules related to the issuance of shares and debentures by companies in India. Rule 5(1) of the rules requires companies to issue shares with a distinctive number. Additionally, companies must maintain a register of members that includes the details of the shares held by each member.
In a case, the Securities and Exchange Board of India (SEBI) fined a company for not complying with the Companies (Share Capital and Debentures) Rules, 2014. The SEBI found that the company had issued shares without assigning them a distinctive number and had not maintained a register of members.
Case Law 3: Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015
The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, specify the rules related to the listing of securities on stock exchanges in India. Regulation 36 of the regulations requires companies to maintain a register of members that includes the details of the shares held by each member.
In a case, the Bombay High Court held that the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, prevail over the Articles of Association of a company. The court held that the company could not deny a shareholder the right to inspect the register of members on the basis of the Articles of Association.
Case Law 4: The Indian Stamp Act, 1899
The Indian Stamp Act, 1899, is the primary legislation governing the stamp duty payable on various instruments in India. Section 8 of the act specifies the stamp duty payable on shares. The stamp duty payable on shares depends on the value of the shares and the state in which the shares are issued.
In a case, the Kerala High Court held that the stamp duty payable on shares is not payable on the nominal value of the shares but on the market value of the shares. The court held that the stamp duty payable on shares is a tax on the transaction and not on the document.
Case Law 5: The Income Tax Act, 1961
The Income Tax Act, 1961, is the primary legislation governing the taxation of income in India. Section 56(2)(viib) of the act specifies the taxability of shares issued at a premium. If a company issues shares at a premium, the premium received is taxable as income in the hands of the company.
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