Share Certificate and its Key Aspects

1. Meaning:

   • A share certificate is a proof of ownership that an individual or entity holds a specified number of shares in a Company. It acts as evidence of the shareholder’s entitlement to the shares mentioned in the certificate.

2. Issuance:

   • Section 46 of the Companies Act, 2013 provides guidelines for the issuance of share certificates.
   • The company must issue the certificate within two (2) months from the date of allotment of shares
   • The company must issue the certificate within one (1) month of receiving the share transfer instrument.
3. Form and Content:
   • The share certificate must be signed by at least two directorsor a director and the company secretary.
   • It must include:
     • Name of the Company and CIN
     • The name and address of the shareholder
     • The number of shares held
     • The distinctive numbers of the shares (for identification)
     • The certificate number
4. Legal Ownership:
   • As per Section 46, the certificate serves as prima facie evidenceof the title of the person to such shares.
     • If lost or destroyed, a duplicate certificate can be issued,is proved to have been lost or destroyed; or
     • has been defaced, mutilated or torn and is surrendered to the company.
5. Dematerialization:
   • While traditionally companies issued physical certificates, many companies issue shares in dematerialized (demat) form via depositories. Physical share certificates are becoming less common in favour of electronic records. Also, as per the current provisions, it is mandatory for certain type of companies to have the shares only in dematerialisation form.
   • For our detailed blog on dematerialisation,
     https://www.chhotacfo.com/blog/dematerialisation-of-shares/
6. Transfer and Transmission:
   • A shareholder can transfer their shares by completing a transfer deed, and upon the company’s approval, a new share certificate is issued in the name of the transferee.
   • Similarly, in the case of transmission (e.g., on death), the legal heir can get the shares transmitted.
7. Penalties for Non-Compliance in Issuance of Share Certificates:
   1. Delay in Issuance:
      • If a company fails to issue share certificates within the specified time limit (two months from allotment or one month from the transfer), penalties are imposed under Section 56 and Section 46 of the Companies Act, 2013.
   2. Penalty Amount:
      • For the Company: The company can be fined a minimum of ₹25,000 and up to ₹5,00,000.
      • For Officers in Default: Each officer of the company who is responsible for the delay (including directors) may be fined individually, with a minimum penalty of ₹10,000 and up to ₹1,00,000.
   3. Liability for Fraudulent Issuance:
      • Under Section 447, if a share certificate is issued fraudulently, the person involved may be charged with imprisonment (which may extend up to 10 years) or a fine (which may be up to three times the amount involved in the fraud).
   4. Penalties for Failure to Register Transfers:
      • If the company fails to register the transfer of shares within the time specified, the penalties are similar to those for failure to issue share certificates, as per Section 56.

Conclusion:

Share certificates are crucial for proving share ownership and ensuring legal rights in dividends, voting, and profits. They also ensure transparency and prevent disputes related to ownership.
The companies maintain a register of members where all the details regarding share issuance and ownership are recorded.
If you have any queries, please feel free to reach out at mgmt@chhotacfo.com

Download share certificate format here