The article is written by HARSH a law student B.com LL.B at PDM University, Haryana. This article focuses on Allotment and Certificates, and their Procedure of Issue of Share Certificates and Warrants. This article has been edited by Ojuswi (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
The share certificate serves as an important document for shareholders to prove ownership of the company. The share certificate must be issued by the company upon incorporation to its shareholders after receiving the capital money. A share certificate is also called a stock certificate and these are documents issued by companies that sell shares on the market.
A warrant gives the holder the right to buy or sell shares of stock to or from the issuing public company at a specified price before a specified date. Holders of warrants are under no obligation to buy or sell the underlying stocks. As a stock warrant is a negotiable instrument, it is transferred by endorsement and mere delivery like any other negotiable instrument.
Meaning of share certificates and warrants
Share certificate and share warrant
A share certificate is a written document that is the official proof of ownership of the number of shares mentioned in it. Every company, limited by shares, whether public or private, must issue a share certificate to its shareholders unless the shares are held in a census.
In terms of Section 45 of the Companies Act, 2013 each share of a company’s capital should be divided by a different identification number. However, such a distinction will not be required, if the shares are held by a person whose name is listed as a profitable holder according to company records.
The share certificate contains the following information on it, namely:
(i) Name of company
(ii) Date of Issue
(iii) Member details
(iv) Shares held
(v) Nominal Value
(vi) Paid-up Value
(vii) Definite number
A share certificate is issued by the company within three months of the allotment of shares to the applicants, issued under the standard company logo. Generally, a shareholder certificate holder is considered a member of a company.
Share warrant
A share warrant is a negotiable document, issued by a public limited company only against fully paid-up shares. It is also called a title deed because the owner of the share warrant has the right to determine the number of shares named in it. There is no obligation on the issue of stock authorization by the company. Although if a public company wants to issue share permits, then prior Central Government (CG) approval is required. In addition, the issue of the stock guarantee must be approved in the company’s corporate records.
A share warrant holder can only take a share certificate if the owner submits a letter authorizing the share and pays the required fee for issuing a share certificate. Thereafter, the company will cancel the title deed to the shares and issue a new share certificate and the company will put its name as a company member in the membership register, after which it will become a member of the company.
Normally, the owner of a share warrant is not a member of the company, but if the articles of association of the company provide it to you, then the manager is considered the owner of the share warrant of the company.
Procedures for issuing share certificates
Board meeting and share allocation
A board meeting is called to decide on the allotment of shares. The board of directors appoints a board of directors known as the allocation committee. The allocation committee then decides on the allotment of shares.
Once the allocation committee has submitted its report on the allocation of shares, the Board then approves the report and decides to allocate shares to the relevant applicants. Once the shares have been assigned to the allocation committee, the company secretary sends the share letters to the appropriate members. A share letter refers to a letter informing an applicant that a company has allocated a certain number of shares. This distribution letter is considered a share certificate until the final certificate is issued.
Member register
The company secretary then prepares the Members’ Register on the list of applications received and the distribution pages. The member register provides information about shareholders and details of shares allotted to them.
Assignments for preparation and printing assignments
The company secretary must compile a share certificate form in accordance with the form proposed by the Articles of Association. The secretary must print the form and all the required particulars according to the provisions of the governing law. The clerk needs to complete all the details on the certificate of share assistance with the application register and the pages provided.
The secretary must ensure that the share certificate is signed by two directors of the company. The secretary needs to sign the share certificate. The secretary must ensure that the company’s stamp and revenue stamp are affixed to each stock certificate. Once the certificates are ready, a board meeting is called to approve the decision on the issuance of share certificates.
Notification and submission of share certificate
The company secretary needs to inform all shareholders that the share certificates are ready and will be issued in exchange for share letters and bank receipts confirming the payment of the dividend. Public notice must be issued with general information of members. Members submit their assignment letters, the share certificate is sent by registered mail to them. Local shareholders may also voluntarily collect share certificates at a registered company office or a designated posting centre.
Penalty for violating the issuance of a share certificate
If a company commits any failure to comply with the provisions relating to the issuance of share certificates, that company will be penalized with a fine not less than INR 25,000 but up to INR 5,00,000 and every official who fails to pay that company’s tax will be. may be fined not less than INR 10,000 but may extend to INR 1,00,000.
The time limit for issuing share certificates
The time limit for the allotment of shares means the allocation of a certain number of shares to the applicant in response to his or her shareholding request, that is, the distribution of shares among the applicants in writing on a fixed basis.
The company must issue a share certificate within two months after the incorporation of the company. In the event that additional shares are allocated to new or existing shareholders, a share certificate must be issued within two months from the date of allocation.
In the case of a transfer of shares, a share certificate must be issued to the transferors within one month of receipt of the transfer instrument of such company.
Procedure for issuing share warrant
Written application
The shareholder must apply in writing to request the issuance of a letter authorizing the exchange in exchange for his share certificate. He must submit the required stamp duty and the required amount (required).
Lodgment ticket
After the application is received, the secretary reviews it (examines it) and issues a Lodgment Ticket. It is a document provided as a deposit certificate confirmation.
Board’s approval
If the secretary is satisfied with the document and application, you submit the application to the Board. A Board Meeting is called for this purpose in particular. A decision is passed at this meeting on the issue of the stock guarantee. The decision also gives the authority to sign and seal the warrant.
Preparation for share warrant
The secretary receives the correspondence that authorizes the share and is prepared by making appropriate submissions and marking them.
Signing warrant
Share authorization is signed by the directors and signed by the secretary.
Entries in the member register
The name of the shareholder is canceled from the Register by writing down the details of the stock guarantee, such as the warrant number, date of issue etc.
Delivery of share warrant
Then the shareholder is informed of the warrant and the warrant is delivered to him in exchange for an entry ticket.
Conclusion
The contents of this article are for informational purposes only and do not include legal advice or opinion and is the author’s personal opinion. It is based on the relevant law and / or facts available at the time and is amended with the correct accuracy and reliability. Students are requested to review and refer to the relevant legal provisions, recent judicial announcements, circulars, explanations, etc. before taking any action based on the above text. Opportunities for other ideas on this subject will not be excluded.
References
- https://taxguru.in/finance/share-warrant-esop-procedure-issue-taxation.html
- https://cleartax.in/s/share-certificate
- https://www.brainkart.com/article/Share-Certificate-and-Share-Warrant_40913/
- https://www.forbes.com/advisor/investing/stock-warrants/
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