Write a note on Share Certificate.

A Share Certificate is a document which specifies the shares held by any member of the company. It is issued by the company under its common seal. Every person whose name is entered as a member in the register of members, is entitled to get share certificate from the company. It is not a negotiable instrument. The share certificate may be in any form. But a valid share certificate must satisfy the following requirements:

  • It must have the common seal of the company affixed on it.
  • It must specify the number and class of shares. The nominal value of share, distinctive number of shares, certificate number and the amounts actually paid should also be stated in it.
  • It must also state the name of the shareholder.
  • Particulars of all share certificates issued shall be recorded in the Register of Members.
  • It must state the name and the address of the registered office of the company and the date of the issue.

Issue of Share Certificate: 

The power to issue share certificate is to be exercised by the directors in Board meetings only. The share certificate must be ready for delivery within two months after the date of allotment and one month after the date of application for the registration of transfer/transmission.

After the introduction of the Demat System. there is no need to issue the share certificate for the shares registered in the name of the depository. Instead, immediately on allotment of such shares, the company has to intimate the details of allotment of shares to the depository.

Legal Effects of Share Certificate: 

The legal effects of the issue of a share certificate are as follows :

Estoppel as to the title to the shares: A share certificate is a prime face evidence of title, i.e., on the issue of a share certificate, the company is estopped (i.e., prevented) from denying the title of the person to the shares whose name is mentioned in the certificate. A share certificate is a declaration by the company that the person in whose name the certificate is issued and to whom it is given, is a shareholder in the company. But if an officer of the company who has no authority to issue the share certificate issues a forged certificate, the rule of estoppel will not be operative against the company.

Estoppel as to payment: In case, the share certificate states that on each of the shares full amount has been paid, then the company is prevented from alleging that the shares are not fully paid. Thus, once the share certificate states that the shares are fully paid, then the company cannot ask for more payment on the ground that the shares were not fully paid.

Issue of Duplicate Share Certificate: The directors are empowered to issue new duplicate share certificate in place of original certificate if such certificate:

  • Is proved to have been lost or destroyed, or
  • Having been defaced or mutilated or torn is surrendered to the company.

A company may issue a duplicate share certificate, if the original certificate has been defaced or mutilated or torn and the certificate is surrendered to the company. But, where the original share certificate is lost, stolen or destroyed, a duplicate share certificate can be issued only as per the provisions of the Articles of Association. The Articles generally prescribe some terms and conditions as to evidence and indemnity. The new certificate shall also be duly sealed and signed and the word ‘DUPLICATE’ shall appear across the face of such certificate. To issue duplicate certificate, the Board of Directors has to pass a resolution. A nominal fee is usually charged, as per Articles, for such certificate.

If a company, with intent to defraud, issues a duplicate share certificate, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved but which may extend to ten times the face value of such shares or ten crore rupees whichever is higher and every officer of the company who is in default shall be liable for action for fraud under Section 447.

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