A share certificate is an essential legal document that certifies ownership of shares in a company and represents the security of the investment that one has made. Understanding it is necessary for anyone investing in the stock market or doing business involving the exchange of shares. This comprehensive guide covers everything you need to know about share certificates, difference between a share certificate and a share warrant, etc.
Have you wondered exactly what a share certificate is in company law? It is a legal document issued by a company to its shareholders as evidence of ownership of shares. It specifies essential details like:
- Name of the company
- Name of the shareholder
- Number of shares owned
- Type of shares held (common or preferred)
- Unique certificate number
In essence, a this certificate proves your ownership as a shareholder and your rights over a certain number of shares in that company. It is an important document to possess, especially during the sale/purchase of shares, splitting shares, and getting dividends.
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While the exact content of share certificate may vary across companies, it is broadly contain the following key details:
- Name of the company
- Registration number
- Address of registered office
- Name of the shareholder
- Share certificate number
- Number of shares held
- Type of shares
- Value/face value per share
- Authorised signatures of directors
- Nominal value per share
- Terms of issue (rights, dividends etc.)
- Appropriate stamp duty
Additionally, the share certificate format would bear the company seal and be printed on high-quality paper to avoid duplication. Some companies may add additional details like dividend rights and voting rights. Modern share certificates have also added security features.
Additional details are included based only on the company’s discretion and legal requirements. Ensuring the certificate has all the above essential elements makes it a valid legal document confirming your share ownership.
Under the Indian Company Law, every company is legally required to issue a share certificate upon allotment of shares within 2 months. A share warrant cannot be issued other than a share certificate.
According to the Companies Act 2013, failure to issue share certificates within the stipulated time would make the company liable to pay a penalty. Every certificate must specify details like shares held, value per share, etc.
Thus, a share certificate has a clear legal basis and significance. It must be duly signed and stamped to be considered a valid legal document under company law.
While they sound similar, share certificates and share warrants are distinct instruments. Let us have a look at the critical differences between them:
| Aspect | Share Certificate | Share Warrant |
|---|---|---|
| Issued to | Existing shareholders as proof of share ownership | Issued to underwriters and creditors, allowing future conversion to shares |
| Ownership Rights | Shareholder enjoys all rights and benefits | No voting rights for warrant holders |
| Transferability | Transferable through a proper transfer deed | Gets converted into tradable shares as per terms |
| Details Covered | Details of shares already allotted and amounts paid | Only the rights to apply for shares by paying the due amount are covered |
Thus, a share certificate confirms your status as a shareholder, while a share warrant represents your right to receive the shares in future.
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The process of issue of share certificate can vary based on the stage of the share certificate issue. Let us get a broad overview of this process:
During Incorporation
- Shares are allotted to promoters subscribing to the Memorandum of Association.
- Certificates are issued at the time of incorporation of the company
After Incorporation
- Allocation of further shares to promoters or public
- Sending intimation letter regarding the allotment
- Payment of requisite share application/allotment amount by the shareholder
- The final share certificate is issued within 2 months
Upon Transfer
- Transmission is initiated through the demat account
- Actual share certificate need not be exchanged
- The register is updated with new ownership details
- For listed companies, share transfers are handled by depositories like CSDL
For unlisted companies, physical share certificates must be exchanged after signing the transfer deed. Most companies have a standard procedure for issuing a duplicate share certificate in case the certificate is lost or damaged.
Possessing share certificates can give you several benefits. The most important ones among them include the following:
1. Proof of Ownership
- Confirms legal ownership of the shares
- Enables participation in important decisions
2. Trading Ease
- Facilitates sale and purchase of shares
- Transfer deed signing is made easier
3. Claiming Dividends/Bonuses
- A share certificate is an essential document for getting regular dividends
- You would need it to avail yourself of stock splits and bonuses.
4. Capital Gains
- It helps determine the holding period for tax purposes
- Supports capital gains tax calculations
5. Inheritance Transfer
- A share certificate ensures seamless transmission of shares to the legal heirs through succession.
- These certificates can help you avoid complicated inheritance-related disputes.
Thus, share certificates must be safely held and preserved so that you can exercise your shareholder rights. Even with modern-day demat account-based trading, share certificates continue to remain significant.
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Common Mistakes to Avoid
While dealing with share certificates, you, as a shareholder, must avoid the following common mistakes:
- I am not cross-checking certificate details for inaccuracies.
- Mishandling your share certificates resulting in damages
- Carelessly revealing the details of your share certificates to unverified persons leading to potential fraud
- Not reporting lost or stolen certificates immediately
- Not applying for duplicate certificates wherever needed
- Not transferring certificates upon sale of shares within the deadline
- Not checking certificates during transmission or deletion requests
Every investor should be mindful and vigilant when handling share certificates. If any clarification is needed, consult financial experts.
Conclusion
A share certificate is pivotal legal proof reinforcing your rights as a shareholder. Understanding what a share certificate entails and following the stipulated guidelines is essential for investing in the stock market. Correct issuance and diligent preservation of share certificates through their lifecycle are also integral from a company law perspective.
With the advent of demat trading, share certificates may be fading. However, they continue to signify legal shareholding, which is vital from the regulatory standpoint; for investors or business owners, staying properly informed about share certificate intricacies is indispensable.
Frequently Asked Questions – FAQs
A share certificate is a legal document issued by a company to its shareholders as proof of ownership of shares. It specifies details like the company and shareholder’s names, the number and type of shares owned, the certificate number, etc.
The key content of share certificate include the company name and details, shareholder’s name, number and type of shares, face value per share, signatures of directors, company seal, terms of issue, etc. Additional details may be added at the company’s discretion.
Under Indian company law, a share certificate is a mandatory document that companies must issue to shareholders within 2 months of share allotment. It represents legal proof of share ownership.
A share certificate confirms existing share ownership with all associated rights. A share warrant gives the right to apply for shares in the future by making the due payments.
Share certificates are issued upon allotment of shares during incorporation or later. For listed companies, it is now issued electronically through demat accounts. For unlisted ones, physical certificates need to be exchanged.
Author: All Content is verified by SMC Global Securities.
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