UNIT III - Share Capital of Company

3.1 Share Capital of Company, Types of Share & Debenture

Structure of Share Capital or Classification of Capital

Classification of Capital

The word ‘Capital’ has different meanings in different professions and contexts. If a company is limited by shares, then the term capital means share capital. Let us see the various classifications of capital like nominal capital. Paid-up capital etc.

Capital

In simple words, the total contributions made by people to the common stock of the company is the capital of the company. Further, a share is the proportion of the capital to which each member has entitlement. Remember, a share is not an amount of money. It is an interest including different rights in the contract.

In this article, we will look at five ways in which the term capital is used in Company Law: nominal capital, issued capital, subscribed capital, called up capital and paid-up capital.

Nominal or Authorized or Registered Capital

Section 2(8) of the Companies Act, 2013, defines Nominal Capital as the amount of capital that the Memorandum of the company authorizes as the share capital of the company. Hence, it is the registered amount authorized that can be raised by issuing shares.

The company also pays stamp duty in this amount. Typically, you can calculate nominal capital by taking into consideration the working and reserve capital needs of the company.

Issued Capital

Issued capital is a part of the Authorized capital, offered by the company for the subscription. This includes the allotment of shares. Section 2(50) of the Companies Act, 2013, offers this definition. Further, it is mandatory for companies to disclose their issued capital in the balance sheet (Schedule III of the Act).

Subscribed Capital

Section 2(86) of the Companies Act, 2013, defines Subscribed capital as part of the capital being subscribed by the members of the company. It is the number of shares that the public takes.

Further, if the company states Authorized Capital in any communication like notice, advertisement, official/business letter, etc., then it has to also specify subscribed and paid-up capital in equally conspicuous characters.

Also, Section 60 of the Act specifies that defaulters in this regard, the company and all officers who default will be fined around Rs. 10,000 and Rs. 5,000 respectively.

Called up Capital

According to Section 2(15) of the Companies Act, 2013, Called up Capital is the part of the capital which the company calls for payment. This is the total amount that the company calls-up on the issued shares.

Paid Up capital

Paid-up capital is the part of called up capital actually paid or credited by shareholders on the issued shares. Mathematically, Paid-up capital = Called up capital – Calls in Arrears.

Paid-up capital represents the money that the company has not borrowed. Also, it is the total amount of money that the company receives from shareholders in exchange for shares of stock.

Shares and Kinds of Shares

Meaning of Shares - In the context of a Company Limited by Shares, the term Share is used in the sense of small parts of the Capital of the Company. Hence, a Share is the Smallest Divisible Part of the Share Capital of the Company. In other words, all those small parts in which the Capital of a Company can be divided are called shares.

A Share has been defined in Section 2(46) of the Indian Companies Act in these words. "Share means share in the Share Capital of a Company and includes Stock except where the distinction between stock & share is expressed or implied."

Kinds of Shares: - According to the provision of the Indian Companies Act 1956, Indian Companies can issue only 2 kinds of shares

1) Preference Shares

2) Equity Share

1. PREFERENCE SHARES-

Preference Shares: It has the qualities of both equity shares and debentures. As in the case of debentures, a fixed rate of dividends is paid to the preference shareholder, despite the profits earned by the company it is liable to pay interest to the preference shareholders.

Types of Preference Shares:

a.    Cumulative and Non-cumulative Shares: Let us say that a the company was not doing well for 4 years but suddenly in the 5th year it started performing well. Then, the persons having cumulative shares will get the the interest of the past 5 years but the persons having non-cumulative shares will get only the interest of the 5th year.
b.    Redeemable and Non-redeemable: Redeemable shares could be matured during the lifetime of the company or before the company closes down, they have a maturity period but the non-redeemable shares mature only after closing down of the company.
c.    Convertible and Non-convertible: Shares that could be converted into other kinds of shares and security say equity shares or debentures are known as convertible shares and if they are not convertible on their maturity they are known as non-convertible shares.
d.    Participating and Non-participating: In case of winding up of the company, the debenture holders were paid up first, then the preference shareholders and then the equity shareholders were paid up, after this if any surplus amount is left, it is distributed equally to equity shareholders and participating shareholders if investors have a participating preference.

2. EQUITY SHARES 
According to the Indian Companies Act, "the Shares which are not Preference Shares are called Equity Shares." The persons purchasing Equity Shares do not get any special rights. The Dividend is paid to Equity Shareholders only after the amount of Profit remaining after payment of Dividend at a fixed rate to the Preference Shareholders. Hence, if a Company earns huge Profits, the Equity Shareholders also get a large amount of Dividend. On the other hand, if the profit is less, the dividend on Equity Shares is also less. Thus, the Equity Shares do not possess two qualities.

1) Certainly of Income &

2) Regularity of Income

                  When a Company is wound-up if any amount remains after refunding the Capital of Preference Shareholders then only capital is refunded to Equity Shareholders. Equity Shares are also called Ordinary Shares.

Types of debentures:

1.    On point of view of record:
a.    Registered debentures: These debentures are registered with the company and the amount is payable only to those debentures holders whose names are registered with the company?
b.    Bearer debentures: These debentures are not registered with the company, these are transferable merely by delivery and the debenture holder will get the interest.

2.    On the basis of security:
a.    Secured or mortgaged debentures: These are secured by a charge on the assets of a company. The principal amount and the unpaid interest could be recovered by the holder out of the assets mortgaged by the company.
b.    Unsecured debentures: They do not get any security in reference to the principal amount of unpaid interest. They are simple debentures.

3.    On the basis of Redemption:
a.    Redeemable Debentures: They are issued for a fixed period and the principal amount is paid off only at the expiry of that period or at the maturity.
b.    Non-redeemable debentures: They are matured only after the liquidation or closing down or winding up of the company.

4.    On the basis of convertibility:
a.    Convertible debentures: These can be converted to shares after the expiry of the period i.e; on their maturity.
b.    Non –Convertible debentures: These cannot be converted to shares on their maturity.

5.    On the basis of priority:
a.    First debentures: These are redeemed before other debentures.
b.    Second debentures: These are redeemed after the redemption of the first debenture.

3.2 Issue of Shares, Allotment, Calls & forfeiture shares

Issue of Shares

When a company wishes to issue shares to the public, there is a procedure and rules that it must follow as prescribed by the Companies Act 2013. The money to be paid by subscribers can even be collected by the company in instalments if it wishes. Let us take a look at the steps and the procedure of issue of new shares.

The procedure of the Issue of New Shares

1] Issue of Prospectus

Before the issue of shares, comes the issue of the prospectus. The prospectus is like an invitation to the public to subscribe to shares of the company. A prospectus contains all the information of the company, its financial structure, previous year balance sheets, and Profit and Loss statements etc.

It also states the manner in which the capital collected will be spent. When inviting deposits from the public at large it is compulsory for a company to issue a prospectus or a document in lieu of a prospectus.

2] Receiving Applications

When the prospectus is issued, prospective investors can now apply for shares. They must fill out an application and deposit the requisite application money in the scheduled bank mentioned in the prospectus. The application process can stay open for a maximum of 120 days. If in these 120 days minimum subscription has not been reached, then this issue of shares will be cancelled. The application money must be refunded to the investors within 130 days since issuing of the prospectus.

3] Allotment of Shares

Once the minimum subscription has been reached, the shares can be allotted. Generally, there is always an oversubscription of shares, so the allotment is done on pro-rata bases. Letters of Allotment are sent to those who have been allotted their shares. This results in a valid contract between the company and the applicant, who will now be a part-owner of the company.

If any applications were rejected, letters of regret are sent to the applicants. After the allotment, the company can collect the share capital as it wishes, in one go or in instalments.

Share allotment

Share allotment is the creation and issuing of new shares, by a company. New shares can be issued to either new or existing shareholders. Share allotment can have implications for any existing shareholder's share proportion. Typically, new shares are allotted to bring on new business partners.

Before you take any action on changing your share structure within your company, contact your Account Manager, so we can understand and advise on your plans.

The process

Any issuing of new shares need to be formally actioned by you as the director. You will need to complete the following steps:

1. Confirm your shareholdings and shareholders ID

Naturally, before you allot any new shares you need to confirm your current shareholdings, the number of shares you wish to introduce, as well as the resulting share structure of your shareholders. When it comes to allotting shares to a new shareholder you will also need to confirm their name, date of birth, nationality, residential address, proof of ID and relationship to the other shareholders in your company.

2. Hold a board meeting

Shares must be allotted through a board agreement. A board meeting should be held to agree on any changes to your company’s share structure. Be sure to keep detailed minutes of your meeting that clearly display the revised share structure and shareholdings. These minutes will need to be kept safe with your company records, they’ll later be used when updating Companies House and also provide a solid audit trail. If you’re an inniAccounts client, we’ll send you a template for the minutes of your meeting.

3. Update Companies House with the new allotment of shares (SH01)

A statement of capital (SH01) form must be completed and delivered to Companies House within one month of any allotment. The SH01 form can be completed on the Companies House website. This form updates Companies House on the structure of your company’s shares. The form does not include details of the shareholders merely the shares themselves, any changes will need updating in your company’s confirmation statement as discussed below.

4. Issue new share certificates

Having agreed your share structure, you will need to issue new share certificates detailing the shareholdings – these will render any previous share certificates as effectively cancelled. If you are an inniAccounts client, we will send you a template share certificate to be signed and dated.

5. Update your company’s confirmation statement (CS01) with the new share totals

You need to update your company’s confirmation statement, with Companies House, to show the new share structure within your company. If you have a new shareholder, remember the SH01 form does not include the new shareholder’s details; you will need to ensure these are included in your confirmation statement.

Forfeiture of Shares

In business, there are situations where stakeholder loses its share because of the non-payment of his share of instalment or dues. However, a company can only forfeit a share if they allow forfeiture under the Article of Association of the company.

What is Forfeiture of Shares?

A forfeited share is a share in an enterprise that the owner suffers (forfeits) by failing to meet the buying requisites. Requirements may incorporate paying call money owed or allotment, or transferring shares during a restricted period or avoiding selling. When a share is forfeited, the member no longer owes any balance or profit on the shares, and the shares become the asset of the issuing enterprise.

Some shareholders might fail to pay instalments, viz., and allocation of money or call money. In such a scenario: 

Their share will be forfeit, which means that the shareholder’s share will be cancelled.

All the entries associated with the forfeited stocks, apart from those associated with premium, already mentioned in the accounting records must have conversed.

The share capital account is debited with the amount called-up.

When Forfeiture of shares Issued at Par- In this situation, the share capital account of a company is debited with the amount called-upon the current date of forfeiture on shares.

The shares call account or shares allotment amount maintains arrears Account then the called-up balance is credited in that account.

Characteristics of Forfeiture

On the basis of the above definition we can state the following characteristics of Forfeiture of Shares.

1. Forfeiture of Shares mean Compulsory Termination of Membership of Shareholder. Similarly, his property in the form of Shares is confiscated or expropriated.

2. The Shares can be confiscated or forfeited if a Shareholder does not pay any Call Installment or Premium on Shares in the given time.

3. Forfeiture of Shares in the last weapon used by a Company.

4. Forfeiture of Shares in a way is a penalty or punishment to a Shareholder.

Essentials of a Valid Forfeiture -

             The Company Secretary has to follow the following principles while forfeiting the Shares to make Forfeiture of Shares legal and according to rules-

1. The Companies Act has not given any right of Forfeiture of Shares. Hence, the Shares cannot be forfeited unless a provision in this regard is made in the Articles.

2. The Secretary has to strictly follow the rules regarding the Forfeiture of Shares given in the Articles.

3. If no such provision is made in the Articles, it is necessary to make alterations in the Articles to obtain the approval of the Court.

4. The Shares can be forfeited only for the reasons mentioned clearly in the Articles and not for any reasons. In general, the Shares are forfeited for nonpayment of Call Money and Interest thereon.

5. It is necessary to pass a Proper Resolution regarding the Forfeiture of Shares in the Meeting of the Board of Directors.

6. Before forfeiture the Shares it is necessary to send a proper Notice of at least 14 days to the Shareholders for paying the outstanding amount. This Notice should also contain the Warning of forfeiture of Shares in case of nonpayment of the amount by the Shareholder.

7. When the Shares are forfeited, the Shareholder is to be intimated in this regard.

8. A Company should make use of the right of the Forfeiture of Shares only in the interest of the Company. The Directors should not use this right in an indiscriminate manner.

PROCEDURE OF FORFEITURE OF SHARES

The following procedure is to be adopted regarding Forfeiture of Shares:

1. Preparing a List of Members not paying Call Money within the Given Period: When the period of paying Call Money is over, the Secretary prepares a List on the basis of the Call List. From this List, it is known that who have paid and who have paid the Call Money. A Separate list is prepared of those Members who have paid the Call Money. A separate List is also prepared of those Members who have not paid the Call Money. This List is presented in the Meeting of the Board of Directors for consideration. The Directors take into consideration the List and issue an Order to the Secretary for sending Reminder to such members. In this regard, a Resolution is passed and accordingly the Secretary is authorized to take necessary action.

2. Sending of Reminder: After receiving the authority from the Directors, the Secretary prepares Call Reminder Letter. He gets many copies printed of this letter. This letter is sent to every such defaulter member. In this letter, it is reminded to the Member that he has not paid the Call Money within the prescribed time; and he is also requested to pay the Call Money with Interest within a particular period.

3. Notice of Warning: If some Members do not pay Call Money even after receiving the Call Reminder Letter within the prescribed time, the Secretary waits for some days. The Secretary, according to the orders of the Directors, sends a Warning Notice to such Members for paying the Call Money within 14 days. In this Notice, the members are warned that if they fail to pay Call Money with Interest within 14 days their Shares will be forfeited.

4. Resolution Regarding Forfeiture in the Meeting of Board of Directors: If some Members do not pay Call Money even after receiving the Warning Notice, the Board of Directors is empowered to extend the period. Even after extending the period of the Members fail to pay the Call Money, there is no other alternative but to forfeit their Shares. In this regard, a Resolution is passed in the Meeting of the Board of Directors.

5. Notice of Forfeiture and Calling back Certificate: As soon the Resolution regarding the Forfeiture of Shares is passed, in the Meeting of the Board of Directors, the names of such Shareholders are removed from the Register of members. As a formality, a Notice of Forfeiture of Shares is sent to these members and a copy of the Resolution is also sent with this Notice, Similarly, the members are requested to return the Certificate of the Shares forfeited.

6. Public Notification of Forfeiture: Normally, the Members do not return the Certificates to the Company. Hence, before reissuing the Forfeited Shares, the Company gives a Public Notice in the leading newspapers & the public is warned that it should not purchase these Shares.

7. Entries in the Accounts Books: The Share Capital of a Company reduces due to Forfeiture of Shares. Hence, it is necessary to send a copy of the Resolution of the Forfeiture of Shares to the Accounts Department. The amount paid by the Members is not refunded to them. This is the Profit of the Company. This Profit is credited in the Forfeited Shares A/c. The balance in the Forfeited Shares Account is used for compensating the Loss caused due to the Issue of Forfeited Shares on Discount. The Accounts Department makes necessary entries in the Accounts Books after receiving the copy of the Resolution of Forfeiture of Shares. The procedure of Forfeiture of Shares is very carefully adopted, because even a minor mistake may make the whole procedure illegal.

SURRENDER OF SHARES

             The Investors become the Shareholders of a Company due to the Allotment of Shares and on the basis of a contract, relationship is established between the Company and the Shareholders.

Meaning of Surrender of Shares: When the Shareholders voluntarily and without any condition return their Shares to the Company and give up their Right of Ownership of Shares is called the Surrender of Shares.

               When it is not possible for a Shareholder to pay Call Money, he returns the Shares to the Company and gives up his Right of ownership of Shares. Thus, in a way, we can say that in order to avoid the action of the Company regarding Forfeiture of Shareholders adopt the way of the Surrender of Shares. When a Company can accept the Surrender of Shares or the Conditions for the Surrender of Shares:

3.3 Transfer & Transmission of Shares

Definition of Transfer of Shares

Transfer of shares refers to the intentional transfer of title (rights as well as duties) to shares by one person to another. There are two parties to transfer of shares, i.e. transferor and transferee.

The shares of the public company are freely transferable unless there is an express restriction provided in the articles of association. However, the company can refuse the transfer of shares, if it has a valid reason for the same. In the case of a private company, there is a restriction on the transfer of shares subject to certain exceptions.

• Persons involved in the transfer
• Subscribers to the memorandum.
• Legal Representative, in case of a deceased.

         - Transferor.

         - Transferee.

Company (whether listed/ unlisted).

Procedure for transfer of shares as per the Companies Act, 2013

Firstly, the transfer deed needs to be obtained in the prescribed form i.e. Form SH-4, endorsed by the prescribed authority.

The instrument of transfer may not be in the prescribed form (Form SH-4) in the following cases:-

a. Where a director or nominee transfers shares on behalf of another body corporate under section 187 of the Companies Act, 2013;

b. Where a director or nominee transfers shares on behalf of a corporation owned or controlled by the central or state Government;

 c. Shares transferred by way of deposit as a security for repayment of any loan or advance If they are made with any of the following:-

i. State Bank of India; or

ii. Any scheduled bank; or

iii. Any other banking company; or

iv. Financial Institution; or

v. Central Government; or

vi. State Government; or

vii. Any corporation held by the Central or State Government; or

viii. Trustees who have filed the declarations.

d. For transferring debentures, a standard format can be used as the instrument of transfer.

Get the Articles of Association in case of shares, trust deed in the case of debentures and transfer deed registered either by the transferor and the transferee or on their behalf in accordance with the provisions of the Companies Act, 2013.

According to Indian Stamp Act and stamp duty notification in force in the state concerned, the transfer deed should need to have stamps. The present stamp duty rate for transfer of share is 25 paise for every one hundred rupees of the value of the share or part thereof. That means for shares valued Rs. 1050, the stamp duty will be Rs. 2.75.

Check that the stamp affixed on the transfer deed is cancelled at the time of or before the signing of the transfer deed.

A person who gives his signature, name and address as approval for transfer must see the the transferor and the transferee sign the share/debentures transfer deed in person.

The relevant Share/debenture certificate or allotment letter with the transfer deed must be attached and sent to the company.

In case the application made by the transferor is for partly paid shares, the company has to duly notify the amount due on shares/debentures to the transferee. Also, no objection from the transferee is required within two weeks from the date of receipt of the said notice.

Affix the same value stamp on a written application if the signed transfer deed has been lost. In this case, the board may register the transfer on specific terms of indemnity as it thinks fit.

If the shares of the company are listed in a recognized stock exchange, then the company cannot charge any fee for the registration of transfers of shares and debentures.

Definition of Transmission of Shares

There are some cases when the transfer of shares occurs due to the operation of law, i.e. when the registered shareholder is no more, or when he is insolvent or lunatic. Transmission of shares also occurs when the shares are held by a company, and it is wound up.

The shares are transferred to the legal representative of the deceased and the official assignee of the insolvent. The transmission is recorded by the company when the transferee gives the proof of entitlement of shares.

Basic Procedure for Transmission of Share

 Generally articles contain the detailed provisions as regards the procedure for transmission of shares. Usually following steps shall be followed in order to give effect to the transmission of shares:—

1. The survivor in case of joint holding or legal heir, as the case may be, who want transmission by operation of law in his/her favour, shall file a simple application with the Company with relevant documents such as death certificate, succession certificate, probate, etc., depending upon various circumstances maybe considers necessary for transmission by the Company.

2. The company records the particulars of the death certificate and a reference number of recording entry is given to the shareholder so as to enable him to quote such number in all future correspondence with the company.

3. The company review and verify the documents submitted with transmission request. In case all the documents are in order, the company shall approve the transmission request and register the shares in the name of the survivor or legal heir as the case maybe.

4. However in case documents submitted with transmission request are not in order and it is the case of refusal, company shall within thirty (30) days, from the date on which the intimation of transmission is delivered to the company, communicate the refusal to the concerned person.

5. Dividend declared before the death of the shareholder will be payable to legal representative but dividend declared after the death of a member can be paid to him only after registration of his name and till that period it has to be kept in abeyance.

BASIS FOR COMPARISON	TRANSFER OF SHARES	TRANSMISSION OF SHARES
Meaning	Transfer of shares refer to the transfer of title to shares, voluntarily, by one party to another.	Transmission of shares means the transfer of title to shares by the operation of law.
Affected by	Deliberate act of parties.	Insolvency, death, inheritance or lunacy of the member.
Initiated by	Transferor and transferee	Legal heir or receiver
Consideration	Adequate consideration must be there.	No consideration is paid.
Execution of valid transfer deed	Yes	No
Liability	Liabilities of transferor cease on the completion of the transfer.	Original liability of shares continues to exist.
Stamp duty	Payable on the market value of shares.	No need to pay.

3.4 Share Certificate & Share Warrant

What is a Share Certificate?

A share Certificate refers to a document which is issued by a company evidencing that a  person named in such certificate is the owner of the shares of Company as stated in the share certificate. The Indian Companies Act mandates companies for issuing share certificates post their incorporation.

Details to be provided in a share certificate

Every share certificate issued in India should contain the below mentioned:

• Name of issuing Company
• CIN no. (Corporate Identification Number) of such Company
• Address of the company’s registered office
• Name of owners of such shares
• Folio number of member
• Number of shares which is represented by such share certificate
• An amount which is paid on such shares
• Distinct number of the shares

Preparing and Printing Share Certificates

The company secretary must arrange the form of the share certificate according to the form suggested by the Articles of Association. The secretary must get the form printed together with all the required details as per the provisions of the governing law. The secretary needs to fill all the details in the share certificate with the help of the application register and allotment sheets.

The secretary also needs to ensure that the share certificate is signed by two directors of the company. The secretary needs to sign a share certificate. The secretary also needs to ensure that the company’s seal and revenue stamp is affixed on each of the Share certificates. Once certificates are in order, a board meeting is called for passing the resolution for issuing share certificates.

Procedure of Issue of Share Certificates and the Function of the Company Secretary-

After completing the necessary entries in the Register of Members, the Company Secretary starts preparing the Share Certificates The procedure for this is as follows

1. Printing of Share Certificates: -Firstly, the Company Secretary gets the Share Certificates printed according to the format given in the Articles. Share Certificate is divided into three parts

a) Counterfoil.

b) Matter of Original Share Certificates.

c) Receipt of Share Certificate, Every portion of the Share Certificate is perforated for separating. Similarly, the Serial Number of Share Certificate is printed on every portion.

2. Preparing Share Certificate: - After getting the Share Certificates printed, the Company Secretary writes all the particulars in the Share Certificates for every Shareholder on the basis of the information in the Register of Members

3. Examination by Auditor: - After preparing the Share Certificates, the Company Secretary gets them examined by the Auditor of the Company.

4. Meeting of the Board of Directors: After the Share Certificates are examined, the Company Secretary calls the meeting of the Board of Directors. A Resolution regarding the issue of Share Certificates is passed in the Meeting

5. Common Seal and Signatures: After the Resolution is part, the Secretary puts the Common Seal of the Company on each Share Certificate. Each Share Certificate is signed by at least two Directors and the Company Secretary himself

6. Notice to the Shareholders: -After completing the above formalities, it is considered that the Share Certificates are ready for issuing to the Shareholders. The Company Secretary sends circular letters to the Shareholders and intimates them that the Share Certificates are ready for issue. The Company Secretary intimates the Shareholders that either they should personally submit the Letter of Allotment and the Receipt issued by the Bank regarding the payment of Allotment Money or send them by post and collect Share Certificates from the Office of the Company. Sometimes, such Notice is also published by the Company in leading newspapers.

7. One or More Share Certificates: In general, only one Share Certificate is issued by the Company to every Shareholder for the Shares purchased by him. But for making convenient the Transfer Shares, some Companies issue independent Share Certificate for each Share. If the Shares are jointly purchased by two or more persons, the Share Certificate contains the names of all the persons but only one Share Certificate is issued to any one of the Joint Shareholders.

8. No fees- A Company has no right to recover or charge any fee for issuing the Original Share Certificate.

Issue of Duplicate Share Certificate

The the following procedure is adopted for issuing a Duplicate Share Certificate.

1. Request by Shareholder: -If an old Share Certificate is lost, spoilt, destroyed or stolen, the Shareholders requests to the Company by an application to issue a New Share Certificate.

2. Cancellation of Old Share Certificate and Issue of New Share Certificate s- After receiving the application from the Shareholder the Old Share Certificate is cancelled and New Share Certificate is issued. The Word "Duplicate" is written on the New Share Certificate.

3. Procedure to be adopted by Shareholder: - If an Old Share Certificate is lost, destroyed or stolen a Shareholder has to adopt the following procedure to obtain a New Share Certificate.

a) To send a Legal Declaration to the Company, regarding the Share Certificate, is lost, destroyed or stolen

b) He has to give an Indemnity Bond to the Company.

c) He has to obtain the Guarantee of a Bank or honourable rich person of the society regarding the Indemnity.

d) He has to pay the necessary Fee to the Company for obtaining the Duplicate New Share Certificate.

4. Procedure Adopted by the Company: - As soon as the application from the Shareholder is received by the Company regarding the loss, destruction or theft of the Share Certificate, the Company gives a Public Notice in the leading newspapers. The application of the Shareholder is presented by the Company Secretary in the Meeting of the Board of Directors for consideration. The Directors pass a Resolution in this regard and direct the Company Secretary to issue a New Share Certificate. Then the Company Secretary sends the New Share Certificate to the Shareholder.

SHARE WARRANT

What is a Share Warrant?

A Share Warrant is a document issued by the company under its common seal, stating that its bearer is entitled to the shares of stock specified therein. Share warrants are negotiable instruments. They are transferable by mere delivery without registration of transfer.

Conditions for issuing share warrants

The following conditions should be satisfied with issuing share warrants.

1. Only a public company can issue share warrants.

2. It must be authorized by the Articles of Association.

3. The shares must be fully paid-up.

4. The approval of the Central Government is necessary.

Merits of Share Warrant

1. The shares mentioned in it are transferable by mere delivery of the warrant. Registration is not necessary.

2. It is a negotiable instrument. So one who purchases the share warrant in good faith and without negligence gets a better title
than that of the transferor.

3. Banks accept Share warrants as a security for loans.

4. The company may provide for future dividend payments by attaching dividend coupons with the share warrants.

Demerits of Share Warrant

Share warrants are not very popular in India. It is due to the following disadvantages:

1. The bearer of the warrant is not a member of the company.

2. Since it is a bearer instrument, the holder always faces the risk of losing the document.

3. The company should be very careful while printing and keeping them in safe custody.

4. The stamp duty on share warrant is very heavy.

5. Prior approval of the Central Government is essential.

6. The number of shares mentioned in it does not constitute a share qualification for directorship.

Characteristics of a Share Warrant: - The following are the main characteristics of a Share Warrant.

1. As a Share Warrant is a Bearer Instrument, the holder of the Share Warrant is considered to be the Owner of these Shares mentioned in it.

2. Besides, a Share Warrant is recognized as a Negotiable Instrument. Hence, the Ownership of the Share Warrant is transferred by Delivery only and the Receiver of the Share Warrant gets Better Title than the Giver of the Share Warrant.

3. The main object of issuing Share Warrant is to make simple the Procedure of Transfer of Fully Paid-up Shares.

Statutory Conditions Regarding Issue of Share Warrants

The following conditions are laid down in Sections 14 and 115 of the Indian Companies Act regarding the Issue of Share Warrants.

1. Only Public Companies can issue Share Warrants. Private Companies cannot issue Share Warrants.

2. There must be a provision in the Articles of the Public Companies regarding the Right to issue Share Warrants.

3. It is necessary to obtain prior permission of the Central Government to issue Share Warrants.

4. Share Warrants can be issued for Fully Paid-up Shares only.

5. The name of the Shareholder to whom a Share Warrant is to be issued is to be removed from the Register of Members, and it is to be mentioned against his name that a Share Warrant is issued.

6. The holder of the Share Warrant can return the Share Warrant to the Company any time and he has a right to get his name registered again in the Register of Members.

7. The holder of a Share Warrant is considered the Member of the Company for the purpose clearly given in the Articles.

8. A Company is liable to pay compensation for the loss suffered by any person because of the Company has registered the name of the holder of the Share Warrant in the Register of Members without taking back and cancelling the Share Warrant.

9. If anyone of the conditions regarding the Issue of Share Warrants is violated by the Company, the Company and every officer responsible for that will be fined Rs. 50/- per day.

10. In order to make convenient to receive Dividend in future on the Shares by the Holder of the Share Warrant, it is necessary to give him a Dividend Coupon.

Procedure of the Issue of Share Warrant

A Company has to adopt the following procedure for the Issue of Share Warrant.

1. Pre-Preparation: -The right to issue Share Warrants is given to the Company in the Articles. If there is no such provision then an Amendment is to be made in the Articles by passing a Special Resolution and thus the Right to issue Share Warrants is obtained. Similarly, the prior permission of the Central Government is to be obtained for issuing the Share Warrants. The Company Secretary has to get printed the Application Forms to be sent by the Share-holders for the Issue of Share Warrants, Similarly, he has also to get the Share Warrants printed in the appropriate form.

2. Applications from Shareholders Demanding Share Warrants: The Shareholders who want to obtain Share Warrants in place of Share Certificates of the fully paid-up Shares owned by them have to submit an Application demanding Share Warrants. The Shareholders also return the Share Certificates to the Company along with the application. Similarly, they pay necessary Stamp Duty and Fee for the same.

3. Delivery of Lodgment Tickets: - The Company Secretary gives Lodgment Tickets to the Shareholders as an evidence that they have submitted the Share Certificates in the Office of the Company for obtaining Share Warrants. Later on, the Lodgment Tickets are to be submitted by the Shareholders in the Office of the Company for obtaining Share Warrants.

4. Examination of Applications: The applications for Share Warrants are examined by the Company Secretary. He also examines other Documents received along with the application. Similarly, the Serial Number is put on the application.

5. Meeting of Board of Directors: After examining the applications, the Company Secretary calls the meeting of the Board of Directors. He presents all the applications demanding Share Warrants in the meeting of the Board of Directors for consideration. The Board of Directors takes a Decision in this regard and passes a Resolution. According to the Resolution, the Company Secretary is authorized to prepare Share Warrants put the Common Seal of the Company and to obtain the Signature of the Directors and to put his own Signature.

6. Preparing Share Warrants: - The Company Secretary gets prepared the Share Warrants on the basis of the applications received for Share Warrants. He affixes Stamps of proper Value on the Share Warrants and writes the full particulars regarding Share Warrants against the name of the concerned MambT in the Register of Members: a) Information regarding the issue of Share Warrants; b) Date of issue of Share Warrants; c) Number and Serial numbers of the Share included in the Share Warrants. Later on, the Share Certificates received along with the applications are cancelled and the names of the Applications are removed from the Register of Members.

7. Examination of Share Warrants: The Auditor of the Company or other Authorized Officers of The company examines whether the Share Warrants are properly and correctly prepared or not. If they find that the Share Warrants are proper and correct, the Signatures of Authorized Directors and the Company Secretary are obtained on the Share Warrants. After completing all these formalities it is considered that Share Warrants are ready for delivery.

8. Notice of Delivery and Delivery of Share Warrants: - Later on, a Notice regarding the Share Warrants are ready for delivery is sent to all applicants. The Share Warrants are delivered to the Applicants after they submit the Lodgment Tickets in the Office of the Company.

Effects of the Issue of Share Warrants

The following are the main effects of the Issue of Share Warrants:

1. The Names of the Holders of Share Warrants are removed and cancelled Members.

2. If there is a provision in the Articles, the Holders of the Share Warrants are considered to be the Members of the Company for specific objects.

3. Dividends Coupons are given to the Holders of Share Warrants for simplifying the payment of Dividend. If the Company takes the Decision to pay Dividend, a notice in this regard is published in leading newspapers and the holders of the Share Warrants are requested to take the amount of Dividend by Submitting the Dividend coupons in the Office of the Company.

4. The Holder of the Share Warrant has a right to obtain the Membership of the Company anytime by returning the Share Warrants to the Company.

5. The Ownership of the Share Warrant is not considered as evidence or proof of the Membership of the Company.

6. While counting the Qualifications Shares of the Directors, the Shares included in Share Warrants cannot be counted in the Qualification Shares.

7. Duplicate Share Warrant can be obtained by paying the Necessary Fees if it is lost or destroyed.

Video Lecture Links:

3.1 https://youtu.be/-qzFLgUh1tg

3.3 https://youtu.be/8A3Hs-LVmys

3.4 https://youtu.be/IwuRlTtbeeY

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