What is a Share Certificate?

To understand what a share certificate is and the different aspects of a share certificate and why a share certificate is important, answer the following article and clear your concept of share certificate.

Understanding Share Certificate Meaning

The company's share certificate is a legal document issued to its shareholders. This certificate is proof of ownership for shareholders who declare to have a certain number of shares. A share certificate shall be issued to shareholders who purchase shares when a company issues shares on the market.

However, it is to be noted that only the shareholder's details and the number of shares they own are contained in a share certificate. This figure does not represent the value of the shares held. Different certificates are issued based on each asset type, with companies issuing several certificates to their shareholders if they own shares in different asset groups. Each company will include elaborate designs on the certificates it issues to prevent fraudulent activities.

Share Certificate Format:

The details set out in the share certificate are as follows:

1. Name of the share issuing company.
2. The firm's registered address.
3. The full name of the shareholder concerned.
4. The company's identification number.
5. The shareholder's Folio number.
6. The number of shares purchased.
7. The difference in the number of shares purchased.
8. Amount of money spent by an individual on the purchase of a share.

Why do Companies issue the Share Certificate?

In the three situations listed below, companies are mostly issuing share certificates. In such cases, new shares are issued and subsequently subscribed to. In addition, the issue of share certificates shall be mandatory where there is a horizontal or vertical transfer between shareholders.

• In the event of loss or damage to the certificates, present holders may also apply for a new certificate. Therefore, the stock certificate serves multiple purposes for both shareholders and companies.

• For each company, the share certificate format is different. A company may issue share certificates within two months of its formation, as provided by the Regulations of the Registrar of Companies in India. A company shall issue this certificate within two months from the date of issue of such shares in the case of a new issue of shares to existing or new investors.

• In the case of the transfer of shares, within 1 month from receipt of the transfer authorization by the entities concerned, a company must issue stock certificates in an acceptable format to those receiving them.

Importance of Share Certificates

The documentation of each shareholder is one of the primary purposes of a share certificate. This will help companies keep a record of the names of genuine shareholders and remove those that are not legitimate from their ecosystem.

As soon as a shareholding change occurs, companies have to update the details of this certificate periodically. These certificates must reflect all transactions on a transparent basis. It will help with the audit and reconciliation processes.

Consider this example below to understand the importance of a share certificate.

Suppose you own an enterprise and invest in a new investor who would help finance your business expansion. You are issuing them a share certificate to formalize their ownership interest and protect their investment. That little piece of paper is extremely important since it's a representation of their holdings in the company. This act proves their investment, lays down their rights, and helps establish trust with your investor.

Disputes or misunderstandings regarding ownership could arise, potentially threatening the future of your business if you do not have this share certificate. In that case, the share certificate protects your company's and investor's interests.

Procedure of Issuing Share Certificates

The procedure for issuing share certificates is as follows.

1. Allotment of shares

That is where the allocation of shares will be made to different shareholders. The company shall call a meeting of the Board of Directors to decide on the possibility of allocating shares. It will constitute a committee known as the Board of Directors to allocate shares. The Allotment Committee will draw up a report to be adopted by the Board of Directors.

The resolution to allocate a share to the relevant applicants is adopted after approval. Once shares have been allocated to applicants, the company secretary will send a letter of assignment containing detailed information on the share allocation. Until the final certificate has been issued, the allocation letter will be regarded as a share certificate.

2. Registration of Members

The firm secretary prepares a list of members once the allocation letter has been received. The Register of Members will ensure that the company has information on the allocation of shares and the shareholders created from the list of applicants received and the allocation sheets.

3. Preparation of the share certificates

As proposed in the Articles of Association, the arrangement of share certificates will be the next step. When preparing this form, the corporate secretary will print it together and fill in all necessary information on a company share certificate according to an application register or allocation sheet. Two directors and the company's secretary sign the share certificate with a revenue stamp and seal. The Company will then call a meeting of its board once all share certificates have been prepared to adopt the resolution on the issue of final stock certificates.

4. Intimation and Dispatch

Finally, it is necessary to inform all shareholders of the preparation of the share certificates and the delivery of the shares in exchange for the previously issued letters of allocation and the baker's receipt. Once the shareholders give up their letters of entitlement, they shall be provided a stock certificate that may be collected at the company's registered office.

Conclusion

A share certificate is an essential legal document proving a shareholder's ownership. A share certificate presents several advantages for investors and companies, making it an efficient management tool. Choose the Kotak Securities share trading app to go ahead with safe and secure share trading.