A share certificate is a piece of paper that certifies the holder’s ownership of shares in a firm for the amount of shares listed on the certificate. It can also be used as a receipt for the acquisition and ownership of shares of a firm. The certificate attests the shareholder’s registered ownership of shares as of a certain date.[i] Nonetheless, in today’s digital era, it’s possible to demonstrate stock ownership without physically possessing a share certificate. Companies are no longer required to automatically issue share certificates since shares are maintained in Demat form. Investors can seek share certificates from the corporation, nevertheless, if they so want. However in cases like  Re, Heaton’s Steel & Iron Co. Ltd., Blyth’s case[ii]., it was held that the issue of share certificate was not necessary for the issue of shares.

Certificates representing stock ownership are issued under many circumstances. Some of these may include:

1. Within two months after the incorporation date, a share certificate is provided to subscribers of the Memorandum of Association.
2. Certificates representing allotted shares must be issued no later than two months after the allotment.
3. Within one month of receiving a transfer instrument, the issuing corporation can begin issuing the certificate.

The term “shares” refers to any ownership interest in a company by having a share in the share capital of a company, as defined by Section 2(84)[iii] of the Companies Act, 2013. The Articles of Association of the Company treat shares and debentures as transferrable property.

The aforementioned requirements can be met by having two directors, the company secretary, or an authorised signatory nominated by the Board of Directors sign the prepared share certificates before they are issued. A share certificate must be issued from the registered office of the firm, and stamp duty must be paid on the certificate’s issuance in accordance with the Stamp Act of the relevant State. On the issuing of a Share Certificate, a firm is required under the Indian Stamp Act to pay Stamp Duty to the collector of Stamps/ Treasure officer/ Revenue Authorities of the State. The firm must file the necessary paperwork with the State’s Revenue authorities, such as a copy of the company’s Articles of Organization, Articles of Incorporation, Certificate of Incorporation, Authorization Letter, Application Form, and PAS-3. After reviewing the evidence, they will rule on the amount of tax the business must pay. The corporation must then file the share stamp duty with the allowed Bank or other authorised institution and deposit the acknowledgement of payment with the Officer of Revenue authority after the adjudication is complete. Once all necessary paperwork has been submitted, the officer will issue a certificate authorising the Company to issue shares.

 Following the issuance of a share certificate, the issuing company is required by Section 88[iv] of the Companies Act, 2013 to record the holder’s information in a register of members. There should also be a notation of the date the share certificate was issued and the name of the recipient. One of the cases in relation to such pertaining facts is Cardiff Chemicals v. Fortune Bio-Tech Ltd.[v] In the case, it was determined by the courts that the corporation must provide evidence that the stock certificates were delivered to the shareholder.

Companies (Issue of Share Certificates) Rules, 1960[vi] controlled the process of issuing share certificates up to April 2014. The process of issuing shares/debentures has been revised in light of the implementation of the Companies (Share Capital and Debentures) Rules, 2014[vii] post April 2014. It describes the procedures that need to be followed when obtaining a replacement stock certificate, as well as the prerequisite conditions that need to be satisfied before the original certificate may be provided. The Act also calls for specific rules in regards to Board meeting and Allotment of shares.

The allocation of shares is to be determined in a board meeting. Share distribution is the responsibility of a board-appointed committee or individual board members. After the committee has allocated shares, the authorised director or company secretary, if any, will send out allocation letters to the appropriate shareholders. Shares are represented by this letter of allocation until the final Share certificate is issued. The allocation sheets and application lists are then used to compile a Register of Members by the business’s authorised director or company secretary, if one exists. Members and their share allocations are recorded in the register kept by the company.

Along with the requisite rules and stipulations, the act also includes certain penalties for various conducts of the companies in relation to issuance of the share certificate. If a firm fails to properly issue share certificates, the company might face a punishment of up to INR 5,00,000 and each officer could face a fine of up to INR 1,00,000 for each instance of failure to comply.

The process of issuing share certificates has been described below:

1. Board Meeting for allotment.- Allotment Committee refers to the small group of Directors chosen at a Board of Directors meeting to make the call on share allocation. With regards to share distribution, the committee makes decisions and reports back to the Board. If the Board agrees with the recommendations, it will vote on a resolution to distribute the shares to the appropriate applicants. Rule 5[viii] of the Companies (Share Capital and Debentures) Rules, 2014 requires a resolution to be passed by the board before stock can be issued.
2. Delivery of Allotment Letters- Once the Board has approved the allotment of shares, allotment letters are sent to the appropriate shareholders. Share allocations are detailed in the allotment letter.
3. Surrender of Letters of Allotment- Letters of allotment or a fractional coupon of sufficient value must be turned in before a share certificate can be issued as per Rule 5. Share certificates are only issued when a letter of allocation or fractional coupons of sufficient value are presented to the corporation and a resolution is passed by the Board of Directors.
4. Preparation of Register of Members: The shareholders and the details of the shares awarded to them are recorded in the Register of Members, which is compiled from the list of applicants and the allotment sheets.
5. Format of Share certificates- Previously there was no format for the share certificates but under the new rules, the management has been given flexibility to the management to issue a share certificate in format which provided the authority for the management to issue a share certificate in a form that is substantially similar to Form No. SH.1.
6. Signatories to the share certificates-  The rules mandate that there should be a clear provision in issuing of shares through signature of two directors authorized by the Board of directors of the company and a secretary who is also authorized by the same board. The situation varies from different types of companies like a one person company.
7. Intimation to members- After the certificates are printed, the Company Secretary will send out an announcement to all shareholders, letting them know that they can exchange their letter of allotment and bankers receipt for payment of allotment money for their new certificates. For the benefit of all of its members, the Company also publishes a public notice.
8. Delivery of Share Certificates- Finally, the time comes for the delivery of shares to their respective holders. Certificates representing shareholders’ ownership interests must be delivered to them within the time frames specified in Section 53(4)[ix] of the Companies Act, 2013. When shares are allotted, the corresponding share certificate must be issued and delivered within two months of the allotment date. Share certificates are mailed by Registered Mail to members who have returned their allotment letters. The Company may also establish a collection centre in their office or at the office of the agency chosen for the dispatch of certificates to facilitate the delivery of share certificates to local shareholders in the area where the registered office of the Company is located.

It is important to note that company can be sued for delay in issuing of such share certificates to its subscribers. One of the recent cases in imposition of such penalty was on a company named RASPBERRY PI EDUCATIONAL SERVICES PRIVATE LIMITED[x]The company was received the relevant remittance of 50,00,000 from its subscribers and was to allot equity shareholders as all the relevant stages were processed. However, they constituted a delay of 30 days in delivering the certificates, which lead to imposition of a fine by the courts for the violation of Section 56(4)[xi] of Companies Act 2013. In Conclusion, share certificates form an important part in a company’s allotment process and due consideration has been taken for such certificates by making of relevant rules and provision in Companies Act 2013.

[i] Fisdom- https://www.fisdom.com/share-certificate/#:~:text=A%20share%20certificate%20is%20a,of%20shares%20of%20a%20company.

[ii] Re, Heaton’s Steel & Iron Co. Ltd., Blyth’s case. (1876) 4 Ch D 140

[iii] The Companies Act, 2013, §2(84), No.18, Acts of Parliament, 2013, (India)

[iv] The Companies Act, 2013, §88, No.18, Acts of Parliament, 2013, (India)

[v] Cardiff Chemicals V. Fortune Bio-Tech Ltd. (2004) 55 SCL 645, 126 Comp Cas 275 (CLB)

[vi] Companies (Issue of Share Certificates) Rules, 1960, Notification of the Government of India in the Ministry of Commerce and Industry (Department of Company Law Administration) No. G. S. R. 798, 30th June, 1959. https://www.mca.gov.in/Ministry/actsbills/rules/CIoSCR.pdf

[vii] Companies (Share Capital and Debentures) Rules, 2014, MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION, New Delhi, 31st March, 2014, https://www.sebi.gov.in/sebi_data/attachdocs/apr-2017/1492085873402.pdf

[viii] Companies (Share Capital and Debentures) Rules, 2014, RULE 5, MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION, New Delhi, 31st March,

[ix] The Companies Act, 2013, §53(4), No.18, Acts of Parliament, 2013, (India)

[x]Faceless Compliance- https://facelesscompliance.com/tag/raspberry-pi-educational-services-private-limited , No. ROC/D/Adj Order/56(4)/Raspberry/ 334 to 338

[xi] The Companies Act, 2013, §56(4), No.18, Acts of Parliament, 2013, (India)

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