Companies Act 2013 on Shares and Shareholders

Legal Forum

Jyoti Srivastava provides an overview of important aspects such as issue of share certificates and voting rights under the new Companies Act, 2013

Share capital is the money invested in a company by shareholders and is a long-term source of finance to the company. In return for their investment, shareholders gain a share in the ownership of the company documented in the form of share certificate(s). The (New) Companies Act, 2013 (“Act”) has not made any changes with respect to the issue of shares [as provided under the (Old) Company’s Act, 1956 (“Old Act”)]. However, the Act emphasises on bringing in more flexibility and more disclosures and stringent punishment for violations.

Share Certificate

Share certificate should be issued pursuant to a board resolution passed by the Board of Directors of a company. Additionally, the Act requires that a share certificate be issued after surrender of the ‘Letter of Allotment’ or a ‘Fractional Coupon’ of a requisite value. Every share certificate shall be prepared as per the specifications prescribed under Form No. SH.1 and shall specify the name(s) of the person(s) in whose favour the certificate is issued, the shares to which it relates and the amount paid-up thereon.

The timelines for issue of share certificates must be strictly followed as mentioned below.

Every share certificate must be issued under the seal of the company, which shall be affixed in the presence of and signed by two directors. If the composition of the Board permits, then at least one of the aforesaid two directors shall be a person other than the managing or whole-time director, who is duly authorised by the Board of Directors of the company or the concerned committee of the Board for the purpose. In addition to the directors of the company, the secretary or any person authorised by the Board for the purpose is also the signatory.

In case of a One Person Company (“OPC”), every share certificate shall be issued under the seal of OPC, which shall be affixed in the presence of and signed by one director or a person authorised by the Board of Directors of the OPC for the purpose and the Company Secretary, or any other person authorised by the Board for the purpose.

If a company, with an intention to defraud, renews a share certificate or issues a duplicate share certificate, then such company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate and up to ten times the face value of such shares or Rs ten crores, whichever is higher. Every officer of such company who is found to be in default shall be liable for action under section 447 of the Act.

Voting Rights

Every member of a company limited by shares and holding equity shares therein shall have a right to vote on every resolution placed in a general meeting. If he is holding any preference share capital, he will, in respect of such capital, have a right to vote only on the following resolutions:

(a) If it directly affects the rights attached to his preference shares;

(b) Winding up of the company;

(c) For the repayment or reduction of its equity or preference share capital;

(d) Where the dividend in respect of a class of preference shares has not been paid for a period of two years or more.

A company can vary the shareholder’s rights linked with varied class of shares after obtaining the consent in writing of the shareholders holding not less than three-fourths in number out of the total number of shares issued to such class or by means of a special resolution passed at a separate meeting of the holders of the shares of that class, in accordance with the provisions of the memorandum or articles of company, or in the absence of any such provision, in accordance with the terms of issue of the shares of that class. A consent of three-fourths of other class of shareholders (jointly holding more than 10 percent equity share capital of other class) shall also be required for passing a resolution, which would cause any variation in the rights of one class of shareholders affecting the rights of other class of shareholders.

Summary of Changes

The Act provides for following changes vis-à-vis the Old Act on issues discussed above:

(i) The constitution and issue of shares by OPC is a new concept introduced through the Act;

(ii) The penalty for defraud in the issue of share certificates has been increased;

(iii) The option of affixing the digital signature on share certificates is not provided to the Company Secretary, though Company Secretary is accepted as the authorised signatory;

(iv) The managing director’s signature is not mandatory on the share certificate.

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Author

Jyoti Srivastava
Jyoti Srivastava is the founding partner of Legal Imperials. She has co-authored a book on One Person Company for Wolters Kluwer. She may be approached for all queries at jyoti.partner@legalimperials.com.

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