In this blog post, Saurabh Kumar, Manager of the Legal and Regulatory Division of Bharti Airtel Limited, Jaipur, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the procedure of issuing share certificates. 

Introduction

Prior to April 2014, the procedure of issuing share certificates was governed by Companies (Issue of Share Certificates) Rules, 1960. With the coming into force of Companies (Share Capital and Debentures) Rules, 2014 w.e.f 01 April 2014, the procedure of issuing shares/debentures has been revisited.

The share capital is the major source of fund for a Company apart from other sources such as debentures, loans, etc. A share certificate is a documentary evidence of a number of shares held by an individual in the organization issuing such shares. The document so issued under the common seal of the Company specifying numbers of shares held by any member, is referred as “Share Certificate.”

Conditions to be Fulfilled

The Companies (Share Capital and Debentures) Rules, 2014 hereinafter referred to as “Rules,” stipulates the mandatory conditions to be fulfilled prior to issuance of share certificate and also stipulates procedure for issuance of duplicate certificates. The procedure of issuing shares is summarized as follows:

1. Board meeting for allotment: A meeting of Board of Directors is conducted to form a small committee of Directors to decide the allotment of shares and the committee so formed is referred to Allotment Committee. The committee decides about allotment of shares and submits a report to the Board. The Board, if approves the report, will pass a resolution to allot the shares to concerned applicants. Rule 5 of the Rules, stipulates a board resolution be passed as one of the mandatory steps prior to issuance of shares.

2. Delivery of allotment letters: Once the Board resolution is passed to approve the allotment of shares, the allotment letters are dispatched to the concerned members. The allotment letter contains information as to a number of shares allotted to an individual.

3. Surrender of letters of allotment: Rule 5 of the rules, stipulates surrender of letters of allotment or fractional coupon of requisite value as a condition precedent to issuance of share certificate. Thus as per Rule 5, no share certificate can be issued except (1) in pursuance of a Board resolution and (2) on surrender to the company of the letter of allotment or fractional coupons of requisite value.[1] 

4. Preparation of Register of Members: A list of applicants and allotment sheets forms basis of preparation of Register of Members and the register contains information about the shareholders and the details of shares allotted to them.

5. Format of share certificates: Prior to coming into force of present rules, there was no format prescribed for share certificates. The Rule 5 of the rules has given flexibility to the management to issue a share certificate in a format as near as possible to Form No. SH.1 prescribed by the rules. The form SH.1 contained the name and registered address of the company, details of shares allotted, machine printed certificate number, the name of the holder(s), the number of shares held the date of issue and duly certified by two Directors and one Secretary/any other authorized person of the company.

6. Signatories to the share certificates: Rule 5 read and form SH.1 contains a provision for the signature of two Directors and a Secretary as a mandate for issuing share certificate. Thus below mentioned signatories are required to put their signatures on a share certificate:

• Two Directors specifically authorized by the Board of Directors of the company for the purpose or the Committee of the Board if so authorized by the Board.
• The Secretary or any other person authorized by the Board.[2]

The rules also stipulate that in case a Company Secretary has already been appointed as per provisions of the Companies Act, he shall be deemed as authorized for the purpose of these rules. The rules further provide that depending on the composition of the Board a non-managing director or a non-whole time director can also be one of the signatories. The mandate of Managing Director as a signatory, as per Companies (Issue of Share Certificate) Rules, 1960 has been relaxed by the present Rules and now a Non-managing Director/Non-whole time Director can also be a signatory for purposes of The Companies (Share Capital and Debentures) Rules 2014.

Apart from the printing of facsimile signature using a machine/equipment, engraving in metal, lithography, the Rules have also introduced the application of digital signatures to the share certificates and the digital signature of Director so affixed, shall have the same treatment as if Director himself has signed the share certificate. The Director will be held liable for the use of his digital signature and safe custody of machines used for the purpose. Affixing signatures by means of an engraved rubber stamp is not allowed. The option to digitally sign a document has been introduced for Directors only and the Secretary/any other authorized person shall affix his signature by the printing of facsimile signature by means of a machine/equipment. The seal of the company shall be affixed on all such share certificates in the presence of two Directors and a Secretary/person authorized in this regard.

However, the situation in case of One person company is quite different in which case the share certificate can be signed by one director or any other person authorized by the Board of Directors AND the Company Secretary or any other person authorized by the Board of Directors for such purpose. Thus the share certificate will be held valid even if the same if not signed by any Director or Company Secretary.

7. Intimation to members: After the share certificates are ready, the Company Secretary shall inform all the shareholders in this regard and that the certificates shall be delivered in exchange for the letter of allotment and bankers receipt for payment of allotment money. The Company also issues a public notice for general information of members.

8. Delivery of share certificates The Section 53(4) of the Companies Act, 2013 deals with the timelines to adhere in the delivery of share certificates to the shareholders. As per provisions, the share certificate once issued shall be delivered within a period of two months from the date of allotment, in the case of allotment of shares. The members who had surrendered allotment letters, share certificates are sent to them by Registered Post. The Company may also arrange to deliver share certificate to local shareholders, where the registered office of the Company is situated, by way of setting up a collection center in their office or from the office of the agency appointed for the dispatch of certificates.

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References:

[1] Rule 5 of The Companies (Share Capital and Debentures) Rules, 2014

[2] Rule 5 of The Companies (Share Capital and Debentures) Rules, 2014