Share Certificate

Last Updated: 14 Jan 2025

The Indian share market has become a preferred investment avenue for investors who want to trade daily or invest systematically for the long term. With the advent of investing technologies and the resulting digital trading platforms, there is an unprecedented increase in trading volume.

This increase in the trading volume is also a reminder that the company that issues the shares has to keep track of all its shareholders as they are the part-owners of the company. However, as investors buy and sell shares regularly, it all comes down to companies issuing share certificates to ensure they keep track of the current shareholders.

What is a Share Certificate?

A Share Certificate is a written, legal document that is issued and signed on behalf of a company that wants to indicate the owners of its issuing shares. Once a company issues share certificates, it becomes documented proof of a shareholder’s shareholding in the company.

The company can issue a share certificate in physical or electronic form, the latter being the preferred choice as the investing process has shifted to digital platforms. When a company issues a share certificate, it details the number of shares and the price at which they were bought. However, the share certificate contains details of the ownership and is not the stock itself.

Understanding Share Certificates’ Meaning

Suppose you go to a shop to buy a mobile phone. Once you have paid the cost price of the mobile to the shop, you become the owner of the mobile phone. However, in the eyes of the law, you would need a bill that contains the details of the mobile, such as the model, colour, specifications and the final paid amount. Once the shop issues you the bill, you can present it to the mobile company, in any event, to mark yourself as the owner. The same is the case with share certificates.

As the shares you buy are assets that have financial value, making you part owner of the company, SEBI has mandated that every company must issue a share certificate to every investor who buys its shares. This is to ensure that the company and the relevant authorities have the information about the shareholders stretching to how much ownership they have.

When the Indian stock market followed the open outcry system, where shares were bought physically by being present at the stock exchange, companies used to issue Share Certificate to the buyer. These share certificates were the only way the company and the shareholders could keep track of the transactions.

However, as the physical share certificates had no means to be tracked, shareholders could pass the share certificates to someone else without notifying the company. Now, as almost every transaction in the Indian share market takes place digitally, the share certificates are rarely issued physically and have shifted to digital share certificates.

When a company issues a share certificate, it contains the following information about the transaction:

• Name of the company and its registration number
• Corporate Identification Number (CIN no.)
• Address of the company’s registered office
• Name of the shareholder
• Folio number of the shareholder
• Number of shares bought by the shareholder
• The amount paid by the shareholder to buy the specified number of shares
• Issue date of shares
• Class of shares

When does a company issue share certificates?

The Securities and Exchange Board of India has mandated companies registered in India to issue the share certificates within two months of its incorporation. If the company issues additional shares to existing or new shareholders, the company must issue share certificates within two months from the original allotment dates of such shares. If the case pertains to share transfer, the company should issue share certificates to transferees within one month of receipt of the instrument of transfer by such company.

Procedures for issuing Share Certificates

Being one of the most important documents in the process of investing, a company takes utmost care in issuing share certificates to the shareholders. The companies follow an extensive procedure of issuing share certificates, as listed below:

• Allotment of shares:

  This is where they decide the allotment of shares to various shareholders. The company calls a board meeting for deciding the prospects of share allotment and constitutes a committee known as the allotment committee. The allotment committee prepares a report which is then approved by the board.

  After approval, a resolution is passed for allotting shares to the respective applicants. Once the shares are allotted to the applicants, the company secretary sends the letters of allotment to the applicants containing the details of the share allotment. The letter of allotment is considered as the share certificate till the final share certificate is issued.

• Register of Members:

  After the letter of allotment is issued, the company secretary prepares a Register of Members. The Register of Members ensures that the company has information regarding the share allotment and the shareholders which are created from the list of applicants received and the allotment sheets.

• Preparation of the share certificates:

  The next step is to arrange the form of share certificates as suggested by the Articles of Association. After the preparation, the company secretary gets the form printed together and fills in all the relevant information in the share certificate as per the application register and allotment sheets.

  The share certificate is then signed by two of the directors of the company and the company secretary with the company’s revenue stamp and seal affixed. Once all the share certificates are prepared, the company calls a board meeting to pass the resolution of issuing the final share certificates.

• Intimation and Dispatch:

  The last step is to inform all the shareholders about the preparation of the share certificates and the delivery in exchange for the previously issued letters of allotment and the baker’s receipt. Once the shareholders surrender their letters of allotment, they are provided with the share certificates, which they can collect from the company’s registered office.

Advantages of Issuing Share Certificates

Issuing share certificates offers numerous benefits for both companies and their shareholders:

• Facilitates Ownership Transfers: A share certificate simplifies ownership transfer by requiring endorsement and updates to the company’s member register.
• Promotes Transparency: By clearly outlining the shareholders and their shareholdings, share certificates enhance corporate transparency and accountability.
• Enables Shareholder Rights: Shareholders with a certificate can exercise voting rights, claim dividends, and actively participate in the company’s decision-making processes.
• Legal Ownership Proof: Share certificates serve as legal proof of ownership in a company, ensuring shareholders’ rights are protected. When considering what is share certificate, it acts as a critical document of ownership.

Disadvantages of Issuing Share Certificates

Despite the benefits, issuing share certificates has its drawbacks:

• Risk of Loss or Damage: As physical documents, share certificates can be misplaced, stolen, or damaged, creating difficulties for shareholders trying to prove their ownership.
• High Costs: Printing and distributing certificates incur additional expenses for companies, particularly those with numerous shareholders.
• Delayed Transfers: Physical share transfers can take significantly longer compared to dematerialized or electronic transfers. Understanding the share certificate’s meaning highlights this inefficiency in the transfer process.
• Administrative Challenges: Managing share certificates can be time-consuming and resource-intensive, especially for companies with a large shareholder base.

Details Provided in Share Certificates

A share certificate is a crucial document that verifies ownership of shares in a company. Understanding what a share certificate helps highlight its role in corporate ownership. The share certificate meaning lies in its function as legal evidence of shareholding and includes the following essential details:

• Shareholder’s Name and Address: The certificate clearly identifies the shareholder’s name and their address as recorded in the company’s register of members.
• Authorized Signatures: Signatures of company representatives, such as directors or secretaries, validate the certificate.
• Share Details: The certificate specifies the number of shares held, the class of shares (e.g., equity or preference), and their nominal value.
• Unique Certificate Number: Each share certificate is assigned a distinct number for tracking and identification purposes.
• Company Information: It includes the issuing company’s name and registered office address, ensuring transparency.
• Issue Date: The date when the certificate was issued to the shareholder is prominently mentioned.
• Shareholders must regularly verify the information on their certificates and report any discrepancies to the company. For anyone exploring share certificate meaning or seeking clarity on what is share certificate, these details form its foundation as a vital legal document in corporate governance.
• Steps to Obtain a Duplicate Share Certificate
• Losing or damaging a share certificate can be concerning for shareholders, but companies provide a process to obtain a duplicate. Understanding what a share certificate and its significance as proof of ownership is vital in this context. Here’s how shareholders can secure a duplicate:
• The first step is to inform the company about the loss or damage of the original certificate. Shareholders must provide specific details, such as the share certificate number, the number of shares held, and any other pertinent information.
• A formal written application requesting a duplicate share certificate must be submitted to the company. This application should include relevant details, such as the shareholder’s name, address, and proof of ownership, along with supporting documents like an affidavit and an indemnity bond.
• The company will review the submitted documents and verify the request. This ensures that the applicant is the rightful shareholder before proceeding further.
• Shareholders may need to provide an indemnity bond to safeguard the company against any liabilities associated with issuing a duplicate.
• Once all formalities are completed and applicable fees are paid, the company will issue a duplicate certificate.

Knowing the share certificate meaning and the steps to obtain a replacement underscores its importance in protecting shareholder rights. For those still wondering what is share certificate, it’s a document critical for securing ownership and facilitating smooth operations in corporate governance.

Key Things You Should Know About Share Certificates

Share certificates are crucial documents symbolizing ownership of shares. To fully understand their significance, it is important to understand what a share certificate is and its role in ensuring seamless transactions and safeguarding shareholder rights. Here are some key aspects:

• Share certificates are indispensable when conducting specific activities, such as selling or transferring shares or using shares as collateral for loans. They authenticate the legitimacy of these actions.
• Share certificates detail the type of shares held by an individual, such as equity shares, preference shares, or debentures. Each class offers distinct rights, responsibilities, and privileges to the shareholder.
• With the rise of dematerialized securities, shares can now be held in an electronic format via a depository participant. In such cases, physical share certificates are replaced with digital records, reflecting the modern share certificate meaning.
• Share certificates often have a specific validity period. Shareholders must regularly verify the status of their certificates to ensure they remain effective for any transactions.
• Companies maintain an official register of members that records all shareholders and their respective shareholdings. Share certificates align with the information in this register, ensuring transparency in ownership records.
• Share certificates serve as legally recognized documents and can be used as evidence in cases of ownership disputes or shareholder claims. Knowing what is share certificate underscores its legal and procedural importance.

Conclusion

Today rarely does any investor demand share certificates in physical form. However, it does not mean that the company does not have to issue a share certificate. If not in physical form, the company has to issue an electronic share certificate that also follows the same issuance procedure. However, the share certificate is sent to the shareholder over email.

If any company fails to comply with the share certificate provisions as mandated by SEBI, it can be fined a minimum amount of Rs 25,000 that could be extended to Rs 5,00,000. Furthermore, the defaulting officer can also be fined a minimum amount of Rs 10,000 and a maximum amount of Rs 1,00,000.

Thus, this answers the question of what is a share certificate. Now you know that you are entitled to a share certificate as the shareholder of a company which makes up for an important investing document.

Frequently Asked Questions

How do I get a share certificate?

Share certificates are documents that provide all the necessary information of the transactions done by the shareholders to purchase the shares. If you are a new shareholder, you will be provided with a letter of allotment by the company which you will have to surrender once the company provides an intimation for the share certificates. After the surrender, you will be sent the share certificates either electronically or physically. If you are an existing shareholder and have lost your share certificate, you can consult the company’s transfer agent for the issuance of a new share certificate.

Who keeps the share certificate?

The shareholders keep the original share certificate until they sell the shares. The company is also required to keep a copy of the share certificate to keep track of the shareholders.

What is the importance of share certificates?

The main aim of a share certificate is to document the stock ownership. As this ownership shifts after the sale of the shares by the shareholder, a share certificate allows the company to keep track of all the shareholders at a specific time.

Can I sell my share certificate?

Yes, you can sell your share certificate, but the transfer must follow legal procedures, including endorsing the certificate and updating the company’s records. Understanding what is share certificate clarifies its role in ownership transfer.

Can you withdraw money from a share certificate?

A share certificate represents ownership in a company, not a bank deposit. You cannot directly withdraw money from it. The share certificate’s meaning lies in its role as proof of shareholding, not as liquid funds.