Share Certificate

The holder of share or shares is issued a share certificate by the company. A certificate under the common seal of the company, signed by one or more of directors, specifying shares held by the member and the amount paid up on the shares shall be prima facie evidence of the title of the member to such share or shares.

Every company shall deliver the certificates to the allottee within three months from the date of allotment and to the transferee within two months of making of the application for the registration of the transfer of shares, debentures or debenture stock.

If default is made, the company and every officer of the company who is in default, shall be punishable with fine which may extend to Rs. 5,000/- for every day during which the default continues. The person may make an application to the court if default is not made good by the company within 10 days after the service of the notice. The court may order the company and any officer of the company to make good the default.

Objects and Advantages : Since a share certificate is prima facie evidence of title, a shareholder is able to show his title to the shares by producing his share certificate. Thus it is very easy for a shareholder to sell his shares in the market by producing a share certificate showing his title to these shares. Besides it would be very easy for a lender to lend money to the shareholder taking the possession of his share certificate by way of security.

Duplicate Certificate

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duplicate certificate if it is proved to have been lost or destroyed or having been defaced, mutilated or torn; is surrendered to the company. The articles may provide other terms and conditions like requiring the allottee to give an indemnity bond (Clause 89 Table A).

If a company with the intent to defraud renews a certificate or issues a duplicate thereof, the company shall be punishable with fine which may extend to Rs. 10,000 and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to Rs. 10000 or with both [Sec.84(3)].

The Central Government may prescribe rules regarding the issue or renewal of certificates and duplicates, fees, etc. (Sec. 84(4)). The rules so made override the provisions in the articles.

4.6 DIFFERENCE BETWEEN A SHARE CERTIFICATE AND A SHARE WARRANT

1. The holder of a share certificate is a registered member of the company whereas the bearer of a share warrant is not. The bearer of a share warrant can be a member only when the Articles so provide and only for the purposes defined in the Articles.

2. A share certificate may be issued in respect of partly or fully paid shares, whereas a share warrant can be issued only when shares are fully paid up.

3. Only public companies are authorised to issue share warrants but share certificates are issued by both public and private companies.

4. A share warrant is transferable by delivery only and no transfer deed and registration of transfer with the company is required. But a share certificate is transferred only in pursuance of a transfer deed along

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with the delivery of the share certificate. The transfer of a share certificate must be registered with the company.

5. A share warrant is a negotiable instrument as it is transferable by delivery only. But a share certificate is not a negotiable instrument.

6. Stamp duty is payable for the transfer of a share certificate but no stamp duty is payable in the case of transfer of a share warrant.

7. The permission of the Central Government is not necessary for the issue of share certificates but share warrants can be issued only if allowed by the Articles and with the prior permission of the Central Government.

8. The holder of a share warrant does not qualify to become a director of the company (where qualification share are required for directorship). But the holder of a share certificate is so qualified.

9. The petition for the winding up of the company can be presented by the holders of share certificates only. Holders of shares warrants cannot do so.

10. Payment of dividend on a share warrant is made by way of coupons attached with it. But in the case of share certificates, the company issues dividend warrants to the holders by name.

4.7 SUMMARY

Allotment means and implies a division of the share capital into defined shares of a particular value or of different classes and assignment of such shares of different persons. An allotment is the acceptance of an offer in purchase relating to valid acceptance of an offer must be followed. The shares can be transferred by any person who is the

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anyone with his authority. However, the legal representative of a deceased member can validly transfer the shares even if he is not the member. The transmission of shares takes place on the death or insolvency of the shareholder. Every person whose name is entered as a member in the register of members, is entitled to receive share certificate from the company. A share warrant is a document specifying certain shares and stating that the bearer of the document is entitled to the shares specified in it.

4.8 KEYWORDS

Share Warrant: Share warrant is a document which shows that the bearer of the warrant is entitled to the shares specified therein.

Share Certificate: As soon as a shareholder is allotted shares, he must be issued a share certificate by the company within the specified time.

Allotment: Allotment is the acceptance by the company of the offer made by the applicant.

Application Money: The amount payable on application for each share is known as application money.

Transmission of Shares: When a registered shareholder dies or becomes bankrupt, his shares are transmitted to his legal representative or the official assignee or receivers, and this is called transmission of shares.

4.9 SELF ASSESSMENT QUESTIONS

1. What restrictions have been imposed by the Companies Act, 1956 on the allotment of shares ? What is the effect of irregular allotment?

2. What is a share certificate ? What is the object and effect of the share certificate ? When can a company renew a share certificate or issue a duplicate ?

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3. What is a share warrant ? Distinguish between a share certificate and a share warrant. What legal formalities are to be complied with for the issue of a share warrant ?

4. How is the transfer of shares effected ? What course is open to a transferee if the company refuses to register a transfer ?

5. What is a forged transfer ? If a forged document is lodged with a company, what is the position of the affected parties ?

4.10 SUGGESTED READINGS

Nirmal Singh, Business Law, Deep and Deep Publication Pvt. Ltd., New Delhi.

M.C. Kuchhal, Mercentile Law, Vikas Publishing House Pvt. Ltd., New Delhi.

Avtar Singh, The Priciples of Mercantile Law, Eastern Book Co., Lucknow.

M.C. Shukla, A Manual of Mercantile Law, S. Chand & Co., New Delhi.

R.S.N. Pillai and Bagavathi, Business Law, S. Chand & Co., New Delhi.

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5.2 Difference between Members and Shareholders 5.3 Capacity of a Member

5.4 Modes of Acquiring Membership 5.5 Cessation of Membership

5.6 Duties and liabilities of Members 5.7 Rights of Members

5.15 Consequences of non-registration of Charges 5.16 Summary

5.17 Keywords

5.18 Self Assessment Questions 5.19 Suggested Readings

5.0 OBJECTIVE

By reading this lesson, you would know about

(a) Who is a member and who may become member ? (b) Modes of acquiring membership.

(c) Rights, duties and liabilities of members.

(d) The borrowing powers of Board of Directors and their limitations

(e) Lender's rights when borrowing is ultra vires the company (f) Charges requiring registration and effect of non-registration