In the investment world, companies often raise capital through various rounds, such as Seed, Series A, B, and C. These funding rounds typically involve issuing securities in exchange for investment. Among these securities, equity shares are the most common, granting investors ownership stakes in the company. Additionally, hybrid securities, like convertible notes, convert into equity later, providing investors with eventual ownership benefits. Every share issued must be documented. This documentation can be either physical, known as a share certificate, or electronic, referred to as demat shares.
What Is a Share Certificate?
A share certificate is a physical document that proves ownership of shares in a company. It details the number and class of shares held and serves as a document of title, which can be pledged if necessary. Issued after receiving capital, it verifies that the shares have been paid for and allotted. Essential details on a share certificate include:
- Name of the shareholder
- Folio Number
- Share Certificate Number
- Distinctive Number of Shares
- Type and Number of Shares
- Nominal Value of the Shares
- Paid-Up Amount of Capital
- Company’s Common Seal (if applicable)
- Signatures of at least two directors or one director and the Company Secretary (if appointed)
The company must maintain records of all issued share certificates, managed by the company secretary or a designated person.
What Are the Time Limits for Issuing Share Certificates?
The issuance timelines for share certificates are as follows:
- Subscribers to the Memorandum: Certificates must be issued within two months from the date of incorporation. These shares can be converted to demat form later if desired.
- Allotted Shares: Certificates must be issued within two months from the date of allotment.
- Share Transfers: Certificates must be issued within one month from the date of receiving the transfer instrument or the intimation of transfer.
For shares handled through a depository, the company must notify the depository immediately.
How Are Physical Share Certificates Issued?
To issue physical share certificates, a company must:
- Hold a Board Meeting: Approve the allotment of shares through a board resolution.
- Issue Certificates: After receiving the capital, certificates must be issued within 60 days of the board resolution. They must be signed by at least two directors, and the applicable stamp duty must be paid according to state regulations.
How Is Stamp Duty Paid on Physical Share Certificates?
Under the Indian Stamp Act, stamp duty is based on the fraction of the total value of shares mentioned on the certificate, not the face value. Rates vary by state; for example, Karnataka requires Re.1 stamp duty per Rs.1,000 of stock value.
Stamp duty must be paid within 30 days of issuing shares. In states where e-stamping is available, payment can be made online.
Documents Needed for Stamp Duty Payment:
- Share Certificates
- Certificate of Incorporation
- MOA and AOA
- Board Resolution Approving the Issue of Share Certificates
- List of Allottees (PAS-3)
- List of Directors or Authorized Payment Personnel
(Note: Requirements may differ by state.)
Issuing share certificates is a crucial compliance step for companies. For shares in digital form, different procedures apply. For more information on dematerialization of shares, refer to our blog on “Dematerialization of Shares.”
