BAJAJ BROKING
With the development and prevalence of electronic trading, traders and investors are so used to instant trades today that they do not often stop to think about how their ownership in a company is constantly changing with each buy or sell order that is executed. You too may have bought the shares of many companies, traded off some right away, and held on to the others for the long term.
The shares that you hold in your demat account represent your partial ownership in the companies that issued those shares. In this regard, the share certificate is a very important document. Want to know what it is, the details it contains and why it is necessary? Find out all about these details in this article.
Also known as a stock certificate, the share certificate is a physical document a company issues to its shareholders. It serves as evidence of ownership of a certain number of shares in a company.
To ensure that the document is not forged, companies often incorporate several unique design elements into their share certificates including affixing the signature of the director authorised to issue the shares and the common seal of the company.
Companies also generally have different share certificates depending on the nature of the shares. For instance, a company may issue two different types of certificates – one for common equity shares and another for preferred shares.
However, thanks to the advancement of technology and the advent of the demat account, the practice of issuing share certificates has stopped.
Now that you know the meaning of a share certificate, let’s check out the different details you can often find in one.
The name of the company issuing the shares, its registered office address and Corporate Identification Number (CIN), among others are found on a share certificate.
The certificate also contains the name of the shareholder, their address as per the company’s records and their folio number.
Every share certificate is required to clearly mention details such as the certificate number, the class of issued shares, the number of shares owned and the distinctive numbers of the shares.
In addition to the above share-related details, the certificate will also contain the face value of the issued shares. Face value refers to the base value of the shares assigned by the company at the time of incorporation.
The date on which the share certificate was issued to the holder will also be clearly listed.
The primary purpose of share certificates is to act as proof of ownership of shares in a company. They help the company easily identify genuine shareholders from investors claiming to be shareholders. By keeping track of the share certificates issued to its shareholders, a company can easily use the information to calculate and distribute dividends. Shareholders may also use the share certificates as evidence of ownership to claim unpaid dividends and other benefits, if any, from the company.
A company issues share certificates when it sells or allocates fresh equity shares to eligible investors through fundraising activities like Initial Public Offering (IPO), Follow-On Public Offering (FPO), rights issues and private placement.
A company may also issue new certificates replacing old ones in the case of any major change to its share capital such as after a stock split or stock consolidations. Also, if there has been any kind of vertical or horizontal share transfers, a company may issue a new certificate to the new holder.
And finally, if the existing share certificates are either lost or damaged, companies may choose to issue duplicate share certificates to their shareholders on the receipt of an application.
To issue a share certificate, a company has to follow a particular procedure as laid out in the Indian Companies Act. Here’s the overview of the key steps.
In the case of a fresh issue of shares, the company has to first hold a meeting of its Board of Directors. In the meeting, the board approves the formation of a share allotment committee. The committee deliberates the issue of new share certificates to the eligible investors and prepares a detailed report, which is submitted to the board.
Once the report is received, the board will accord its approval for the issue of share certificates. Upon receiving the approval, the company secretary sends a letter confirming the allotment of shares to all the eligible investors.
The company secretary then prepares a Register of Members, where all the details of the eligible investors are entered. This includes their name, address, their folio number, the number of shares allotted to them, the class of shares issued, the certificate number and the distinctive number of the shares, among others. It will also contain the amount paid by the shareholders and the face value of the shares.
Once the respective entries are made in the Register of Members, the company secretary proceeds to print the share certificates. After printing the share certificates, the company secretary ensures that they’re signed by the company’s director and affixes the common seal.
Once printing and signing are complete, the company secretary dispatches the new share certificates via mail to all the eligible shareholders at the address mentioned at the time of application. A notification by way of email, SMS or a letter is sent to the eligible investors informing them of the dispatch.
Also Read: What is Sweat Equity?
If you have purchased shares of a company and have received share certificates in the physical format, ensure that you dematerialize your shares right away. The Securities and Exchange Board of India has made it mandatory for every shareholder to convert their existing physical shares into electronic format.
To do this, you will need a demat account, which you can open with Bajaj Broking. All you need to do is follow a simple 3-step process to open your demat account today, so you can hold your share certificates electronically.
Share this article:
Standard Deviation: Meaning, How To Use and Calculate
14 Dec, 2024 | 5 Min. read
Business Forecasting: Definition, Methods, and Models
14 Dec, 2024 | 8 Min. read
Modern Portfolio Theory (MPT): Definition, Types & How To Use
14 Dec, 2024 | 8 Min. read
ASM & GSM Meaning - List of ASM & GSM Stocks
14 Dec, 2024 | 7 Min. read
What Is Nifty BeES? A Guide to Its Benefits and Working
14 Dec, 2024 | 6 Min. read
Nifty Healthcare Index
14 Dec, 2024 | 1 Min. read
Hedging: Meaning, Types, Risks and Strategie
14 Dec, 2024 | 6 Min. read
Bollinger Bands: Meaning, How To Interpret and Use
14 Dec, 2024 | 7 Min. read
Moving Averages Indicator: Variations & Examples
13 Dec, 2024 | 4 Min. read
Learn Everything About Breakout Trading
13 Dec, 2024 | 9 Min. read
Gold Price in India | Gold Drops 1% After Reaching Five-Week High
13 Dec, 2024 | 39 Min. read
Statement of Account and Demat Account: Meaning & Differences
13 Dec, 2024 | 4 Min. read
RBI Launches ULI: Transforming Loan Access
August 27, 2024 | 4 Min. read
Textile Sector in India
September 20, 2024 | 5 Min. read
List of IPOs with DRHPs Filed
November 30, 2023 | 3 Min. read
Aditya Birla Group
September 28, 2023 | 10 Min. read
Bajaj Housing Finance Ltd IPO: Things Smart Investors Need to Know
September 05, 2024 | 4 Min. read
Budget Stock Ideas 2024-2025 | Stocks to Buy Today
July 24, 2024 | 4 Min. read
IPO Eligibility Criteria : Full Details
March 15, 2024 | 6 Min. read
What Is the Lock-In Period in IPOs?
October 18, 2023 | 6 Min. read
Godfrey Phillips Announces 2:1 Bonus Shares
September 16, 2024 | 7 Min. read
Jindal Group- A Comprehensive Analysis
September 27, 2024 | 7 Min. read
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading