Share Certificate and Family Company


Away from strictly legal structure know to us, we students of Indian corporate laws know specific classes of companies  – Husband-wife company, Family company, friends basically, and company – “basically partnership” etc. Nothing is defined but all these terms. The basic character of these companies is the utmost trust and faith at the time of incorporation. Due to this, we receive specific queries like:

Is it mandatory to issue a share certificate if both/all the directors are shareholders?

The legal answer is YES. But this brings complete dissatisfaction to the client. Hence, many of the professionals started saying No with a low tone BUT. Interestingly, with time we find this BUT become soundless. This becomes an unfortunate practice among young to say No or leave it for now.

Share Certificate is sensitive documents and with or without any law, it should be mandatorily recommended by professionals. Like any other written contract or contract note between two mutually trusted parties, share certificate bind trust and provide long term life to the company.

If all shareholders, whether sitting in the boardroom or not, trust for each other nothing is required and so the company itself (unless some outside consideration like bank loan is there). Once, we choose a company form of business we should follow the law governing its basics, secondly do all thing to enhance long life of the mutual trust and hence of the company.

Most of the oppression and mismanagement cases filed before the company courts and National Company Law Tribunal are amongst and between family and ‘former’ friends. Interestingly, a share certificate is the first factor missing in their relationship and trust is the last factor missing. The Government of India recently ordered certain class of companies to have a share in the dematerialized form to completely vanish possibility of no share certificate, fake share certificate or share certificates never given. This clearly shows high advisability of share certificates – either in material or de-material form. Due to cost factors, neither the government nor this writer recommends dematerialised shares for all companies.

In case a company does not issue there will also be several non-compliance of the law, like:

  1. No issue of the share certificate;
  2. Not issuing share certificates within time;
  3. Not to issue share certificate to defraud;
  4. No payment of stamp duty on the issue of share certificates or allotment or subscription of shares; and
  5. No payment of stamp duty on transfer of shares (possible).

One of the queriest aksed if there are only two shareholders who are also only two directors of the company, who will sign and who will give. My reply is:

In the present case, both people will sign two certificates in the capacity of directors and handover the certificate to the respective person as a company and the person receiving will receive it in the personal capacity of shareholder.

Also Read:
Signing Share Certificate 

FOLIO NUMBER

SHARE CERTIFICATES AND RELATED BOOKS

CERTIFICATE OF SHARES

  • Aishwarya Mohan Gahrana

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