Capital refers to the
amount invested in the company so that it can carry on its activities. In
a company capital refers to "share capital". The capital clause in
Memorandum of Association must state the amount of capital with which
company is registered giving details of number of shares and the type of
shares of the company. A company cannot issue share capital in excess of
the limit specified in the Capital clause without altering the capital
clause of the MA.
different terms are used to denote different aspects of share capital:-
1.Nominal, authorised or registered
means the sum mentioned in the capital clause of Memorandum of
Association. It is the maximum amount which the company raise by issuing
the shares and on which the registration fee is paid. This limit is cannot
be exceeded unless the Memorandum of Association is altered.
capital means that part of the authorised capital which has
been offered for subscription to members and includes shares alloted to
members for consideration in kind also.
capital means that part of the issued capital at nominal or
face value which has been subscribed or taken up by purchaser of shares in
the company and which has been alloted.
capital means the total amount of called up capital on the
shares issued and subscribed by the shareholders on capital account. I.e
if the face value of a share is Rs. 10/- but the company requires only Rs.
2/- at present, it may call only Rs. 2/- now and the balance Rs.8/- at a
later date. Rs. 2/- is the called up share capital and Rs. 8/- is the
uncalled share capital.
capital means the total amount of called up share capital which
is actually paid to the company by the members.
In India, there is the
concept of par value of shares. Par value of shares means the face value
of the shares. A share under the Companies act, can either of Rs10 or
Rs100 or any other value which may be the fixed by the Memorandum of
Association of the company. When the shares are issued at the price which
is higher than the par value say, for example Par value is Rs10 and it is
issued at Rs15 then Rs5 is the premium amount i.e, Rs10 is the par value
of the shares and Rs5 is the premium. Similarily when a share is issued at
an amount lower than the par value, say Rs8, in that case Rs2 is discount
on shares and Rs10 will be par value.
Types of shares :
Shares in the company may be similar i.e they may carry the same rights
and liabilities and confer on their holders the same rights, liabilities
and duties. There are two types of shares under Indian Company Law :-
shares means that part of the share capital of the company
which are not preference shares.
Shares means shares which fulfill the following 2
conditions. Therefore, a share which is does not fulfill both these
conditions is an equity share.
Preferential rights in respect of Dividend at fixed amount or at fixed
rate i.e. dividend payable is payable on fixed figure or percent and
this dividend must paid before the holders of the equity shares can be
It also carries
preferential right in regard to payment of capital on winding up or
otherwise. It means the amount paid on preference share must be paid
back to preference shareholders before anything in paid to the equity
shareholders. In other words, preference share capital has priority both
in repayment of dividend as well as capital.
of Preference Shares
1.Cumulative or Non-cumulative
: A non-cumulative or simple preference shares gives right to fixed
percentage dividend of profit of each year. In case no dividend thereon is
declared in any year because of absence of profit, the holders of
preference shares get nothing nor can they claim unpaid dividend in the
subsequent year or years in respect of that year. Cumulative preference
shares however give the right to the preference shareholders to demand the
unpaid dividend in any year during the subsequent year or years when the
profits are available for distribution . In this case dividends which are
not paid in any year are accumulated and are paid out when the profits are
and Non- Redeemable : Redeemable Preference shares are
preference shares which have to be repaid by the company after the term of
which for which the preference shares have been issued. Irredeemable
Preference shares means preference shares need not repaid by the company
except on winding up of the company. However, under the Indian Companies
Act, a company cannot issue irredeemable preference shares. In fact, a
company limited by shares cannot issue preference shares which are
redeemable after more than 10 years from the date of issue. In other words
the maximum tenure of preference shares is 10 years. If a company is
unable to redeem any preference shares within the specified period, it
may, with consent of the Company Law Board, issue further redeemable
preference shares equal to redeem the old preference shares including
dividend thereon. A company can issue the preference shares which from the
very beginning are redeemable on a fixed date or after certain period of
time not exceeding 10 years provided it comprises of following conditions
It must be
authorised by the articles of association to make such an issue.
The shares will be
only redeemable if they are fully paid up.
The shares may be
redeemed out of profits of the company which otherwise would be
available for dividends or out of proceeds of new issue of shares made
for the purpose of redeem shares.
If there is premium
payable on redemption it must have provided out of profits or out of
shares premium account before the shares are redeemed.
When shares are
redeemed out of profits a sum equal to nominal amount of shares redeemed
is to be transferred out of profits to the capital redemption reserve
account. This amount should then be utilised for the purpose of
redemption of redeemable preference shares. This reserve can be used to
issue of fully paid bonus shares to the members of the company.
Preference Share or non-participating preference shares
: Participating Preference shares are
entitled to a preferential dividend at a fixed rate with the right to
participate further in the profits either along with or after payment of
certain rate of dividend on equity shares. A non-participating share is
one which does not such right to participate in the profits of the company
after the dividend and capital have been paid to the preference
Alternation of capital
A company limited by shares can alter the capital clause of its Memorandum
in any of the following ways provided that such alteration is authorised
by the articles of association of the company :-
Increase in share
capital by such amount as it thinks expedient by issuing new shares.
divide all or any of its share capital into shares of larger amount than
its existing shares. eg, if the company has 100 shares of Rs.10 each (
aggregating to Rs. 1000/-) it may consolidate those shares into 10
shares of Rs100 each.
Convert all or any
of its fully paid shares into stock and re-convert stock into fully paid
shares of any denomination.
Subdivide shares or
any of shares into smaller amounts fixed by the Memorandum so that in
subdivision the proportion between the amount paid and the amount if any
unpaid on each reduced shares shall be same as it was in case of from
which the reduced share is derived.
Cancel shares which
have been not been taken or agreed to be taken by any person and
diminish the amount of share capital by the amount of the shares so
The alteration of the
capital of the company in any of the manner specified above can be done by
passing a resolution at the general meeting of the company and does not
require any confirmation by the court.
Reduction of the share
capital can be effected only in the manners specified in Section 100-104
of the Act or by way of buy back under Section 77A and 77B of the Act.
Notice of alteration to share capital is required to be filed with the
registrar of the company in Form no 5 within 30 days of the alteration of
the capital clause of the MA. The Registrar shall record the notice and
make necessary alteration in Memorandum and Articles of Association of the
company. Any default in giving notice to the registrar renders company and
its officers in default liable to punishment with fine which may extend to
the Rs50 for each day of default.
Conversion of shares into stocks :
Conversion of fully paid shares into stock may likewise be affected by the
ordinary resolution of the company in the general meeting. Notice of the
conversion must be given to the Registrar within 30 days of the
conversion, the stock may be converted into fully paid shares following
the same procedure and notice given to the Registrar in Form no 5. In this
connection, the following provisions are important :-
Only fully paid
shares can be converted into stocks
Direct issue of
stock to members is not lawful and cannot be done.
between shares and stock is that shares are transferable only in
complete units so that transfer of half or any portion of share is not
possible whereas stock is expressed in terms of any amount money and is
transferable in any money fractions.
Articles may be give
the Board of Directors authority to fix minimum amount of stock
Since stock is not
divided into different units it is not required to be numbered. Shares
on the other hand must be numbered.
Reduction of share capital with sanction of the Court
A company limited by the shares or a company limited by guarantee and
having share capital can if authorised by its articles, by special
resolution and subject to confirmation by the court on petition reduce its
share capital. It may effect reduction of its share capital in any of
1. Where the company
is overcapitalised :-
It may extinguish
or reduce the liability of member in respect of uncalled or unpaid
capital. For example, where shares are of Rs100 each with Rs60 paid
up, the company may reduce them to Rs60 fully paid and thus release
the shareholder from the liability on uncalled capital of Rs. 40/-.
Pay off or return
part of the unpaid capital not wanted for the purpose of the company.
For example, where the shares are fully paid of Rs100 they may be
reduced Rs40 each and Rs60 may be paid back to the shareholders.
Pay off part of
the paid up share capital on the footing that it may be called up
again. If shares are of Rs100 each the company may pay off Rs25 per
share on condition that when desired the company may call it again
without extinguishing the liability of shareholders to pay the
uncalled share capital.
Reduce by a
combination of the aforesaid methods
2. Where has suffered
loss of capital, in such situation the company can write off or cancel the
share capital which has been lost or is unrepresented by available assets.
Where the company has
passed the resolution for reducing the share capital, it must, by
petition, apply to the court in the prescribed form to the court for an
order confirming the reduction. Where the proposed reduction of share
capital involves the either diminution of liabilities in respect of unpaid
share capital or the payment to any shareholder of any paid-up share
capital or in any other case if the court so directs the following
provisions shall have effect :-
Every creditor of
the company who on the date fixed by the court is entitled to debt from
or any claim against the company shall be entitled to object to the
The Court shall
settle a list of creditors so entitled to object and for that purpose
shall ascertain as far as possible without requiring an application from
any of the creditors, the names of creditors and the nature and amount
of debt or claims and publish notices fixing the day or days within
which creditors not entered in the list are to be entered if they so
Where a creditor
entered on the list whose debt or claim is not discharged or has not
been determined does not consent to the reduction, the court may, if it
thinks fit, dispense with the consent of the creditors if the company
secures payment of this debt or claim by appropriating the following
amounts as the court may direct:-
The company admits
the full amount claim or debt or though not admitting it is willing to
provide for it, then the full amount of debt or claim
If the company
does not admit and is not willing to provide for the full amount of
debt or claim or if the amount is contingent or not ascertained, then
amount fixed by the court after due enquiry.
Where the proposed
reduction of share capital involves either diminution of any liability
in respect of the unpaid share capital or payment of any shareholder of
any paid share capital, the Court may, having regard to any special
circumstances of the case as it thinks proper so to do, direct that the
above provisions shall not apply to any class or classes of creditors.
If the court is
satisfied with respect to every creditor of the company entitled to
object to reduction that either his consent to the reduction has been
obtained or his that debt or claim has been discharged or has been
determined or has been secured, make an order confirming the reduction
on such terms and conditions as it thinks fit.
Where the court
makes such an order, it may, if for any special reasons thinks fit and
proper to do so, make an order directing that the company shall shall
during such period commencing on and any time after the date of the
order as is specified in the order add to its name as the last words the
words "& Reduced" and make an order requiring the company to publish the
same along with the reasons for the reduction or such other information
in regard thereto as the court may think expedient with view to giving
proper information to the public and if the court thinks fit the causes
which led to reduction.
Where the company is
ordered to add to its name the words "& Reduced" those words shall until
the expiry of period specified in the order shall be deemed to be part
of the name of the company.
The registrar, on
the production to him, of an order of the court confirming the reduction
of the share capital of the company and on delivering to him the
certified copy of the order and of minutes approved by the court showing
with respect to the share capital of the company as altered by the order
register the reduction of share capital. On registration of order and
minutes, the reduction of share capital shall take effect.
Notice of the
registration shall be published in such manner as the court may direct.
Reduction of capital without the sanction of the court
Reduction of capital can take place without the sanction of the court in
the following cases
Buy back of shares
in accordance to the provisions of Section 77A and 77B
Forfeiture of shares
- A company may if authorised by its articles forfeit shares for
non-payment of calls by the shareholders. Such proceedings amount to
reduction of capital but the act does not require court sanction for
Valid surrender of
the shares - A company may accept the surrender of shares
capital - A company may cancel the shares which has not been taken up or
agreed to be taken by the person and diminish the amount of its share
Purchase of shares
of member by the company under Section 402B. The Company Law Board may,
on application made under Section 397 or Section 398, order the purchase
of shares or interest of any member of the company by the company. These
provisions come in force when a prescribed number of members make a
complaint to the CLB for mis-management or oppression of the minority
shareholders in the company.
redeemable preference shares. Where redeemable preference shares are
redeemed, it actually amounts to reduction of the capital. However, this
does not require the sanction of the court.
Buy-back of shares : Buy
back of its own shares by a company is nothing but reduction of share
capital. After the recent amendments in the Companies Act, 1956 buy back
of its own shares by a company is allowed without sanction of the Court.
It is nothing but a process which enables a company to go back to the
holders of its shares and offer to purchase from them the shares that they
There are three main
reasons why a company would opt for buy back :-
shareholder value, since with fewer shares earning per share of the
remaining shares will increase.
As a defense
mechanism against hostile take-overs since there are fewer shares
available for the hostile acquirer to acquire.
Public Signaling of
the Managementís Policy.
A company may purchase
its own shares or other specified securities out of :-
its free reserves;
premium account; or
the proceeds of any
shares or other specified securities:
No buy-back of any
kind of shares or other specified securities can be made out of the
earlier proceeds of an earlier issue of the same kind of shares or same
kind of other specified securities.
No company can
purchase its own shares or other specified securities unless :-
the buy-back is
authorized by its articles;
a special resolution
has been passed in general meeting of the company authorizing the
the buy-back is of
less than twenty five per cent of the total paid-up capital and free
reserves of the company:
the buy-back of
equity shares in any financial year shall not exceed twenty five per
cent of its total paid-up equity capital in that financial year
the ratio of the
debt owned by the company is not more than twice the capital and its
free reserves after such buy-back. However, the Central Government may
prescribe a higher ratio of the debt than that specified under this
clause for a class or classes of companies.
all the shares or
other specified securities for buy-back are fully paid-up;
the buy-back of the
shares or other specified securities listed on any recognized stock
exchange is in accordance with the regulations made by the Securities
and Exchange Board of India in this behalf;
the buy-back in
respect of shares or other specified securities other than those
specified in clause (g) is in accordance with the guidelines as may be
The notice of the
meeting at which special resolution is proposed to be passed shall be
accompanied by an explanatory statement stating
a full and complete
disclosure of all material facts
the necessity for
the class of
security intended to be purchased under the buy-back
the amount to be
invested under the buy-back and
the time limit for
completion of buy-back.
Every buy-back must be
completed within twelve months from the date of passing the special
The buy-back may be :-
from the existing
security holders on a proportionate basis;
from the open market
from odd lots, that
is to say, where the lot of securities of a listed public company whose
shares are listed on a recognized stock exchange is smaller than such
marketable lot as may be specified by the stock exchange;
by purchasing the
securities issued to employees of the company pursuant to a scheme of
stock option or sweat equity.
Where a company has
passed a special resolution to buy-back its own shares or other securities
under this section, it shall, before making such buy-back, file with the
Registrar and the Securities and Exchange Board of India a declaration of
solvency in the form as may be prescribed and verified by an affidavit to
the effect that the Board has made a full inquiry into the affairs of the
company as a result of which they have formed an opinion that it is
capable of meeting its liabilities and will not be rendered insolvent
within a period of one year of the date of declaration adopted by the
Board, and signed by at least two directors of the company, one of whom
shall be the managing director, if any:
Such a declaration of
solvency need not be filed with the Securities and Exchange Board of India
by a company whose shares are not listed on any recognized stock exchange.
Where a company buys
back its own securities, it shall extinguish and physically destroy the
securities so bought back within seven days of the last date of completion
Where a company
completes a buy-back of its shares or, other specified securities under
this section, it shall not make further issue of the same kind of shares
or other specified securities within a period of twenty four months except
by way of bonus issue or in the discharge of subsisting obligations such
as conversion of warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures into equity shares.
Where a company buys
back its securities under this section it shall maintain a register of the
securities so bought, the consideration paid for the securities
bought-back, the date of cancellation of securities, the date of
extinguishing and physically destroying of securities and such other
particulars as may be prescribed.
A company shall, after
the completion of the buy-back under this section, file with the Registrar
and the Securities and Exchange Board of India, a return containing such
particulars relating to the buy-back within thirty days of such completion
as may be prescribed. However such return need not be filed with the
Securities and Exchange Board of India by a company whose shares are not
listed on any recognized stock exchange.
If a company makes
default in complying with the provisions of this section or any rules or
any regulations, the company or any officer of the company who is in
default shall be punishable with imprisonment for a term which may extend
to two years, or with fine which may extend to fifty thousand rupees, or
For the purposes of
buy back, "specified securities" includes employees' stock option or other
securities as may be notified by the Central Government from time to time;
Where a company
purchases its own shares out of free reserves, then a sum equal to the
nominal value of the share so purchased shall be transferred to the
capital redemption reserve account and details of such transfer shall be
disclosed in the balance sheet."
No company shall
directly or indirectly purchase its own shares or other specified
(a) through any
subsidiary company including its own subsidiary companies; or
(b) through any
investment company or group of investment companies; or
(c) if a default, by
the company, in repayment of deposit or interest payable thereon,
redemption of debentures, or preference shares or payment of dividend to
any shareholder or repayment of any term loan or interest payable
thereon to any financial institution or bank, is subsisting.
No Company can,
directly or indirectly, purchase its own shares or other specified
securities in case such company has not filed its annual returns with the
Registrar of Companies, or has not paid the dividends declared by it
within 42 days from the date of declaration or has not prepared its annual
accounts in the prescribed manner.
Variation of shareholders rights
The rights, duties and liabilities of all shareholders are clearly defined
at the time of issue of the shares. Once the rights of shareholders are
fixed, they cannot be altered unless the provisions of the Companies Act
for this purpose are complied with. The rights attached to the shares of
any class can be varied only with the consent in writing of shareholders
holding not less than 75 % of the issued shares of that class or with the
sanction of special resolution passed at a separate meeting of the holders
of issued shares of that class. However, the following conditions also
must be complied with :-
The variation of
rights are allowed by the Memorandum or Articles of Association of the
In absence of such
provision in the Memorandum or Articles of company, such variation must
not be prohibited by the terms of issue of shares of that class.
Rights of Dissenting Shareholders : The
rights of the shareholders who did not consent to or vote for variation of
their rights are protected by the Companies Act. If the rights of any
class of the shareholders are varied, the holders of not less than 10 per
cent of the shares of that class, being persons who did not consent to or
vote in favour of resolution for variation of their rights can apply to
the court to have the variation cancelled. Where such application is made
to the court, such variation will not be given effect unless and until it
is confirmed by the court.
Rights of the Members
Every member of a public company limited by shares holding equity shares
will have votes in proportion to his share in paid up equity capital of
shareholders do not have any voting rights. However, they can vote on
matters directly relating to the rights attached to the preference share
capital. Any resolution for winding up of the company or for the reduction
or repayment of the share capital shall be deemed to affect directly the
rights attached to preference shares. Where the preference shares are
cumulative (in respect of dividend) and the dividend thereon has remained
unpaid for an aggregate period of two years before date of any meeting of
the company, the preference shareholders will have right to vote on any
resolution. In case of non-cumulative preference shares, preference
shareholders have right to vote on every resolution if dividend due on
their capital remains unpaid, either in respect of period of not less than
two years ending with the expiry of the financial year immediately
preceding the commencement of the meeting or in respect of aggregate
period of not less than three years comprised in six years ending with the
expiry of concerned financial year.
shareholder has a right to vote at a general meeting. No company can
prohibit any member from exercising his voting right any ground including
the ground that he has not held his shares for a minimum period before he
becomes eligible to vote. However, a memberís voting rights can be revoked
if that member does not make payment of calls or other sums due against
him or where the company has exercised the right of lien on his shares.
Further issue of the capital
Rights Issue of Shares
If, at any time after the expiry of 2 Years from the date of incorporation
of the company or after one year from the date of first allotment of
shares, whichever is earlier, a public company limited by shares issues
further shares within the limit of authorised capital, its directors must
first offer such shares to the existing holders of equity shares in
proportion to the capital paid up on their shares at the time of further
issue. This is commonly known as "Rights Issue of shares". The company
must give notice each of the equity shareholders giving him the option to
buy the shares offered to him. The shareholders must be informed of the
number of shares he has the option to buy. He must be given at least 15
days to decide for exercising his option. The directors must state in the
notice of the offer the fact that the shareholders also has the right to
renounce the offer in whole or part in favour of some other person. This
is commonly known as "Renunciation of Rights".
If the shareholder
does not inform the company of his decision to take the shares, it is
deemed that he has declined the offer. In case where the rights shares are
not taken by the shareholders, the directors of the company may dispose of
the shares in the manner they think fit.
A company may by
special resolution in the general meeting decide that the directors need
not offer the shares to the existing shareholders of the equity shares and
that they may dispose them off in a manner thought fit by them. This is
known as "preferential offer of shares" where third parties or only
certain shareholders are given shares in priority over the other
However, if a special
resolution for preferential issue of shares is not passed but merely an
ordinary resolution is passed, preferential issue of shares may be done
provided sanction of the Central Government is obtained. The price at
which the preferential shares are to be offered are governed by the SEBI
guidelines in case of listed companies. Such shares cannot be issued at a
price which is less than the higher of the following :-
The average of the
weekly highs and lows of the closing prices of the shares on the stock
exchange during 6 months preceding the date of issue ; or
The average of the
weekly highs and lows of the closing prices of the shares on the stock
exchange during 2 weeks preceding the date of issue
The above provisions
of preferential allotment do not apply to conversion of loans or
debentures in equity shares provided the terms of the loan or terms of
issue of debentures give an option to convert such loans or debentures
into shares of the company. Such terms and conditions must be approved
before the issue of debenture or raising of the loan by the Central
Government or must be in confirmity with the rules made by the Government
for this purpose. The proposal must be approved by the special resolution
passed by Company at the general meeting before the issue of debentures or
raising of the loan. For this purpose the Central Government has framed
the Public Companies (Terms of issue of debentures and raising of loans
with option to convert such debentures or loan into equity shares ) Rules,
1977. The following is the broad gist of these rules :-
The debenture or
loan is raised or issued either through private subscription or through
issue of the prospectus to the public.
institutions specified for this purpose either underwrite or subscribe
to the whole or part of the issue of debentures or sanction the raising
Having regard to
financial position of the company, the terms of issue of debentures or
terms of loan (eg rate of interest payable on debenture and loan the
capital of the company, its liabilities and its profits during
immediately preceeding five years and the current market price of shares
of the company), the conversion must be either at par and or at premium
not exceeding 25 percent of the face value of the shares.
The provisions of
rights and preferential issue do not apply in the following cases :-
Increase in share
capital by a private company.
Increase in share
capital by a deemed public company.
of shares at discount
A company may issue shares at a discount i.e at a value below its par
value. The following conditions must be satisfied in connection with the
issue of shares at a discount :-
The shares must be
of a class already issued
Issue of the shares
at discount must be authorised by resolution passed in the general
meeting of company and sanctioned by the company law board.
The resolution must
also specify the maximum rate of discount at which the shares are to be
Not less than one
year has elapsed from the date on which the company was entitled to
commence the business.
The shares to be
issued at discount must issued within 2 months after the date on which
issue is sanctioned by the company law board or within extended as may
be allowed by the Company Law Board.
The discount must
not exceed 10 percent unless the Company Law Board is of the opinion
that the higher percentage of discount may be allowed in special
circumstances of case.
of shares at premium
A company may issue shares at a premium i.e. at a value above its par
value. The following conditions must be satisfied in connection with the
issue of shares at a premium:-
The amount of
premium must be transfered to an account to be called share premium
account. The provisions of this Act relating to the reduction of share
capital of the company will apply as if the share account premium
account were paid up share capital of the company.
account can be used only for the following purposes :-
In issuing fully
paid bonus shares to members.
In Writing off
preliminary expenses of the company.
In writing off
public issue expenses such as underwriting commission, advertisement
In providing for
the premium payable paid on redemption of any redeemable preference
shares or debentures.
In buying back its
of bonus shares
Bonus shares are issued by converting the reserves of the company into
share capital. It is nothing but capitalization of the reserves of the
company. Bonus shares can be issued by a company only if the Articles of
Association of the company authorises a bonus issue. Where there is no
provision in this regard in the articles, they must be amended by passing
special resolution act at the general meeting of the company. Care must be
taken that issue of bonus shares does not lead to total share capital in
excess of the authorised share capital. Otherwise, the authorised capital
must be increased by amending the capital clause of the Memorandum of
association. If the company has availed of any loan from the financial
institutions, prior permission is to obtained from the institutions for
issue of bonus shares. If the company is listed on the stock exchange, the
stock exchange must be informed of the decision of the board to issue
bonus shares immediately after the board meeting. Where the bonus shares
are to be issued to the non-resident members, prior consent of the Reserve
Bank should be obtained.
Only fully paid up
bonus share can be issued. Partly paid up bonus shares cannot be issued
since the shareholders become liable to pay the uncalled amount on those
Equity and Employee Stock Options
Sweat Equity Shares mean equity shares issued by the company to its
directors and / or employees at a discount or for consideration other than
cash for providing know how or making available the rights in the nature
of intellectual property rights or value additions.
A company may issue
sweat equity shares of a class of shares already issued if the following
conditions are fulfilled :-
A special resolution
to the effect is passed at a general meeting of the company
specifies the number of shares, the current market price, consideration,
if any, and the class of employees to whom the shares are to be issued
At least 1 year has
passed since the date on which the company became eligible to commence
In case of issue of
such shares by a listed company, the Sweat Equity Shares are listed on a
recognized stock exchange in accordance with SEBI regulations and where
the company is not listed on any stock exchange, the the prescribed
rules are complied with.
A share certificate is a document issued by the company stating that the
person named therein is the registered holder of specified number of
shares of a certain class and they are paid up upto the amount specified
in the share certificate. The share certificate must bear the common seal
of the company and also must be stamped under the relevant stamp act. One
or more directors must sign it .It should state the name as well as
occupation of the holder and number of shares , their distinctive number
and the amount paid up.
Every company making
allotment of shares must deliver the share certificate of all shareholders
within three months of allotment. In case of transfer of shares, the share
certificate must be ready for delivery within two months after the shares
are lodged with the company for transfer. If default is made in complying
with the above provisions, the company and every officer of company who is
in default is liable to punishment by way of fine which may extent to
Rs500 for every day of default. The allotee must give notice to the
company reminding of its obligation and even then, if default is not made
good within 10 days of the notice, the allotee may apply to the Company
Law Board for direction to the company to issue such share certificate in
accordance with the Act. Application for this purpose must be made with
the concerned regional bench of the Company Law Board by way of petition.
The petition should be accompanied by the following documents :-
Copy of the letter
of allotment issued by the company
for the allotment of the shares or debentures for transfer
Copy of the notice
served on the company requiring to make good the default
evidencing payment of application fee
appearance with the Board copy of resolution of the board for the
executive Vakalat Nama as the case may be Companies act does not
prescribe any form for share certificate.
A Shareholder must
keep his share certificate in safe custody or in case of shares which are
traded in demat mode, with the depository. The company may renew or issue
a duplicate certificate if such certificate is proved to have been lost or
destroyed or having being defaced or mutilated or torn or is surrendered
to the company. However, if the company, with the intention to defraud
issues duplicate certificate, the company shall be punishable with the
fine upto Rs10000 and every officer of the company who is in default with
imprisonment upto 6 months or fine upto Rs10000 or both.
Once a share
certificate is issued by the company, the name of the person in whose
favour it has been issued becomes the registered shareholder. Nobody can
then deny the fact of his being the registered shareholder of the company.
Similarly, if the certificate states that on each of shares a certain
amount has been paid up, nobody can deny the fact that such amount has
been paid up
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