Shares and Share Certificates: Importance and Issuing Procedure

Last Updated at: February 18, 2020
394
What is the importance of share certificate_
  1. What are shares?
  2. What details are to be provided in a share certificate?
  3. What is the time period to issue the share certificate?
  4. What is the procedure of issuing a share certificate?
  5. What is the penalty amount?

Stock market and shares are some of the most used and heard terms in business or while starting a company and hold significance in the market. But, ever wondered what these are for? And how does this work? Well, let us consider a scenario or rather a cycle of how shares work. For instance, an individual buys the shares of a well-established company. For that, the individual has to pay a certain amount, which acts as the investment for this person, on which they will gain profits depending on the amount or percentage of shares. The company gets the investment amount from the share buyers and in return, the individual gets the profit amount, also called dividend on the shares they have bought. This is how the shares come to a full-circle, benefiting both the investors and the company.

What are shares?

In simple terms, shares are the financial assets that provide a certain percentage for the ownership for a company to the individual buying the shares. The most famous example of companies selling the shares that have led to the upheaval of the stock market is FANG (Facebook, Apple, Netflix, and Google). They have increased the share prices by leaps and bounds, also leading to an increase in the value of the stock market.

Share certificate and its importance

All the legal procedures demand proof through a document. After buying the shares of a company, the share certificates have to be issued which acts as a proof for the ownership of the individual in the company. This is issued by the owner of the company selling the shares in the market.

Under the Indian Companies Act, it is mandatory for the buyers or the companies to issue share certificates after the incorporation of the ownership is completed.

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Information to be provided in the share certificate

The various details that have to be mandatorily included in the share certificate are as mentioned below:

  • The issuing company’s name
  • Corporate Identification Number (CIN)
  • Address of the issuing company
  • Name of the owner buying the shares
  • Folio number
  • The number of shares bought has to be represented and mentioned in the certificate
  • The amount paid/invested on the shares so bought
  • The dividend amount that the share buyers will get
  • The number of shares

Unlike the old days, the share certificates are now provided in the digital format. However, they are also available in the offline format as well.

The time period to issue the share certificates

It is mandatory for the company selling the shares to issue the share certificates within two months of buying the ownership and shares of the company. While in the case of monetary receipts related to shares, the time period to do so is one month.

Issuing share certificates: The procedure

The procedure followed while issuing the share certificates is as follows:

  • Allotment team: Firstly, a team is made, which decides and allots the share percentage and amount to all the buyers. For this, a board meeting is conducted. The allotment team is responsible for preparing the reports for shares, which are further approved by the board. Once approved, it is the duty of the company secretary to issue notices informing the share buyers about the allotment of the number of shares. Till the time the final and complete certificate is provided to the share buyers, the letter acts as a temporary one.
  • Members’ register: Further, a register is created for all the members and the applications received. This register is a record of all the details of the shareholders.
  • The printing process of share certificates: As per the suggestions made by the Article of Association (AoA), the share certificates are arranged by the company secretary and further given for printing. After the printing, it is mandatory that these certificates are signed by the directors and the company secretary. Additionally, the logo and seal of the company must be there on the share certificate.
  • Dispatch: In exchange for the allotment letters that were issued earlier, the share certificates are sent to the share buyers. But, before the certificates are finally dispatched a public notice/letter is issued to all the members intimating them for the same.

Penalty

In case any errors or defaults are made by the company during the issuing process of the share certificates, a penalty of more than Rs.25,000 extending up to Rs.5,00,000 has to be paid by the company. Additionally, the officers found guilty of the defaults will have to pay a fine between Rs.10,000 – Rs.1,00,000.

Conclusion

As such, while buying the shares of any company, the share certificates are not just a mere piece of paper but more than that the proof for the ownership of the shares so bought.

 

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Shares and Share Certificates: Importance and Issuing Procedure

394
  1. What are shares?
  2. What details are to be provided in a share certificate?
  3. What is the time period to issue the share certificate?
  4. What is the procedure of issuing a share certificate?
  5. What is the penalty amount?

Stock market and shares are some of the most used and heard terms in business or while starting a company and hold significance in the market. But, ever wondered what these are for? And how does this work? Well, let us consider a scenario or rather a cycle of how shares work. For instance, an individual buys the shares of a well-established company. For that, the individual has to pay a certain amount, which acts as the investment for this person, on which they will gain profits depending on the amount or percentage of shares. The company gets the investment amount from the share buyers and in return, the individual gets the profit amount, also called dividend on the shares they have bought. This is how the shares come to a full-circle, benefiting both the investors and the company.

What are shares?

In simple terms, shares are the financial assets that provide a certain percentage for the ownership for a company to the individual buying the shares. The most famous example of companies selling the shares that have led to the upheaval of the stock market is FANG (Facebook, Apple, Netflix, and Google). They have increased the share prices by leaps and bounds, also leading to an increase in the value of the stock market.

Share certificate and its importance

All the legal procedures demand proof through a document. After buying the shares of a company, the share certificates have to be issued which acts as a proof for the ownership of the individual in the company. This is issued by the owner of the company selling the shares in the market.

Under the Indian Companies Act, it is mandatory for the buyers or the companies to issue share certificates after the incorporation of the ownership is completed.

Get free legal advice now

Information to be provided in the share certificate

The various details that have to be mandatorily included in the share certificate are as mentioned below:

  • The issuing company’s name
  • Corporate Identification Number (CIN)
  • Address of the issuing company
  • Name of the owner buying the shares
  • Folio number
  • The number of shares bought has to be represented and mentioned in the certificate
  • The amount paid/invested on the shares so bought
  • The dividend amount that the share buyers will get
  • The number of shares

Unlike the old days, the share certificates are now provided in the digital format. However, they are also available in the offline format as well.

The time period to issue the share certificates

It is mandatory for the company selling the shares to issue the share certificates within two months of buying the ownership and shares of the company. While in the case of monetary receipts related to shares, the time period to do so is one month.

Issuing share certificates: The procedure

The procedure followed while issuing the share certificates is as follows:

  • Allotment team: Firstly, a team is made, which decides and allots the share percentage and amount to all the buyers. For this, a board meeting is conducted. The allotment team is responsible for preparing the reports for shares, which are further approved by the board. Once approved, it is the duty of the company secretary to issue notices informing the share buyers about the allotment of the number of shares. Till the time the final and complete certificate is provided to the share buyers, the letter acts as a temporary one.
  • Members’ register: Further, a register is created for all the members and the applications received. This register is a record of all the details of the shareholders.
  • The printing process of share certificates: As per the suggestions made by the Article of Association (AoA), the share certificates are arranged by the company secretary and further given for printing. After the printing, it is mandatory that these certificates are signed by the directors and the company secretary. Additionally, the logo and seal of the company must be there on the share certificate.
  • Dispatch: In exchange for the allotment letters that were issued earlier, the share certificates are sent to the share buyers. But, before the certificates are finally dispatched a public notice/letter is issued to all the members intimating them for the same.

Penalty

In case any errors or defaults are made by the company during the issuing process of the share certificates, a penalty of more than Rs.25,000 extending up to Rs.5,00,000 has to be paid by the company. Additionally, the officers found guilty of the defaults will have to pay a fine between Rs.10,000 – Rs.1,00,000.

Conclusion

As such, while buying the shares of any company, the share certificates are not just a mere piece of paper but more than that the proof for the ownership of the shares so bought.

 

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