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The definition of what is a share certificate depends on the laws of each particular country. Generally, it is a document of a corporation that confirms ownership of a certain number of shares. In some countries, it may be known as a “stock certificate” or “shareholder certificate”.
Different countries have different rules about what share certificates should include, what are the classes of shares and what rights their owners have.
We will examine the definitions and their differences with examples of the United States, the United Kingdom, India, and China.
These jurisdictions are selected for a good reason. Collectively, the GDP of these countries is almost half of the world’s GDP, which makes our article relevant to half of the world’s economy.
United States of America
In the United States, legislation is divided into two layers: federal and state. The definition of a stock certificate is not fixed in a single federal law for all states, as it is in many other countries.
As an example, we considered the legislation of Delaware as one of the most popular states for incorporation.
- According to Section 158 of the Delaware General Corporation Law, the stock of a corporation must be represented by certificates. However, the board of directors may declare that some or all classes of stocks may be uncertificated.
- If you own shares represented by certificates, you need to obtain a certificate signed by two officers of the corporation. If the signing officer does not fulfill that role at the time the certificate is issued, it will still be valid. The corporation cannot issue certificates in the name of the bearer only.
United Kingdom
- Section 768 in the UK’s Companies Act 2006 states that a share certificate is an initial proof of owning the specified shares. In Scotland, it’s enough to prove ownership unless shown otherwise.
China
- Article 129 in China’s Company Law outlines that a “Share Certificate” is an official document. It confirms the ownership of shares in a particular company.
- In addition, this provision stipulates that each share certificate issued must contain the signature of the company’s legal representative. The certificate must be sealed with the company’s official seal.
India
- Section 46 of India’s Companies Act specifies that a “Share Certificate,” signed by two directors or a director and the Company Secretary, serves as primary evidence of share ownership.
- The same section permits the issuance of a new certificate if the original one is proven lost. If the company fraudulently issues a duplicate, it incurs a fine at least five times the value of those shares.
United States of America (Delaware)
In compliance with Section 151 of the Delaware General Corporation Law, information in the Stock Certificate may include:
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Information Included in a Share Certificate
- Classes and Series of Stock (§151(a)). The certificate includes the types and series of stock, along with any special rights or limitations.
- Number of Authorized Stocks (§151(b)). The certificate notes the total number of stocks authorized for each class and series.
- Voting Rights (§151(d)). The certificate defines associated voting rights.
- Company Name. The complete legal name of the Delaware corporation.
- Shareholder’s Name. Identification of the shareholder.
- Number of Shares. The number of shares owned by the shareholder.
China
In accordance with Article 129 of the Companies Law of the People’s Republic of China, the following main items shall clearly be indicated on a company share certificate:
- The name of the company.
- The date of the company’s incorporation.
- The class of the shares, the par value, and the number of shares represented by the certificate.
- The serial number of the share certificate.
The share certificate shall be signed by the legal representative and sealed by the company. Additionally, the words “promoter’s share certificate” shall clearly be indicated on the share certificates issued to promoters.
India
According to the Indian Companies Act, a company share certificate may include:
- Share Number (§45): Each share has a unique number.
- Issuer and Seal (§46(1)): Signed by two directors or a director and the Company Secretary, it shows who owns the shares.
- Amount Paid-Up (§2 (ii), p. 237): Shows the amount that’s been paid for the shares.
- Sharing With Others (§2(iii), p. 237): If more than one person owns the same shares, only a single certificate is given.
- Company Name. The full legal name of the corporation is registered in India.
- Shareholder’s Name. Identification of the shareholder.
- Number of Shares. The number of shares owned by the shareholder.
Classes of Shares
The types of share classes depend on the laws of each particular jurisdiction as well as the rights their holders receive. We’ve reviewed the share classes commonly used in different legal systems. These include the European Union, the United States, Canada, and Australia, among others.
Common Shares
The most typical type of shares. Ordinary shares owners have the right to vote at general meetings of the company’s shareholders and may receive dividends (a portion of the company’s profits). The main risk is that if the company is dissolved, holders of ordinary shares are the last to receive the funds remaining after debts and other obligations.
Preferred Shares
Preferred shareholders have higher rights to dividends and assets. This means that they receive dividends before ordinary shareholders and have more rights to assets in the event of a company liquidation. However, they generally do not have voting rights, which makes them less attractive to those who want to have the right to make strategic decisions in the company’s operations.
Non-voting Ordinary Shares
These shares do not provide the shareholder with voting rights in the company. They may be issued to employees or family members to provide them with an economic interest in the company without influencing corporate decisions.
Redeemable Shares
These are shares issued with the condition that the company may repurchase them at a future date. Such repurchase may be at a predetermined price or at the market rate.
Bonus Shares
Also referred to as “share dividends”, these are shares transferred to existing shareholders in proportion to the number of shares they already own. Their issuance is usually backed by the company’s undistributed profits.
Electronic Share Certificates
An electronic share certificate is an online form of a traditional paper certificate that confirms that the holder owns part of the company’s shares.
Before issuing electronic certificates, a company needs to double-check its own rules and the laws of the jurisdiction in which it is registered. This is to ensure that there are no restrictions requiring her to adhere to the use of paper certificates only.
For example, under Section 398 of the Indian Companies Act, electronic share certificates are permitted in India, subject to compliance with the rules laid down by the central government.
The Companies Law of the People’s Republic of China does not specify the form of share certificates, but Article 129 states that share certificates may be in paper form or in other forms as prescribed by the securities regulatory.
General steps for obtaining an electronic certificate include:
- Corporate requirements. Review of company rules and agreements to ensure that electronic share certificates can be created. If not, corporate documents need to be amended.
- Board approval. Holding a board meeting to approve the issuance of shares in electronic or physical form. Documenting the decision in the minutes of the meeting.
- Selection of platform or software. It is necessary to select an online system designed to manage the company’s shares that allows the creation of electronic share certificates.
- Data Entry. Enter the required details into the selected platform. Generally, this is information such as shareholder name, number of shares, issuance date, and other information.
- Certificate generation. The certificate must be digitally signed or have some form of protection.
- Record keeping. Record the electronic share certificate in the company’s official shareholder register to ensure that ownership is accurately tracked.
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How to Obtain a Share Certificate
The process for obtaining a Share Certificate in paper form is quite similar to the process of obtaining an electronic certificate.
While the process may vary from jurisdiction to jurisdiction, it generally includes:
- Corporate Requirements. Review the company’s rules and agreements to determine how to obtain a share certificate.
- Filing an application. Submit a formal request to the company for a share certificate. This request is generally sent to the secretary.
- Board approval (Optional). If the number of shares is large, it may require the approval of the board of directors. Documenting the decision in the minutes of the meeting.
- Verification of ownership. Once the company has received the application, it will check the applicant’s details against shareholder records to confirm that the applicant owns the relevant shares.
- Certificate production. After verification, the company will create a certificate containing essential information.
- Compliance. It is necessary to ensure that the share certificate complies with applicable laws and company rules.
- Record keeping. Record the share certificate in the company’s official shareholder register to ensure that ownership is accurately tracked.
Conclusion
Share certificates serve as legal evidence of share ownership and are issued in both physical and electronic formats. Requirements for certificates vary widely from jurisdiction to jurisdiction. For example, in the US, share certificates are governed by individual state laws, while the UK, India, and China have centralized legislation to ensure a uniform approach.
The information included in a share certificate usually includes important details such as the class of shares, the number of shares owned, and the identity of the shareholder. Some jurisdictions are more flexible on the format of the certificate and allow the use of electronic share certificates.
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FAQ
What does a share certificate look like?
A shareholder certificate is an official legal document that serves as proof of ownership of stock in a corporation. It is usually printed on high-quality security paper to prevent fraud and includes:
- Company Name. Specifies the full legal name of the registered corporation.
- Shareholder’s Name. Identifies the shareholder owning the shares.
- Number of Shares. Indicates the total shares owned by the shareholder.
- Share Type. Identifies the class and series of shares and the associated rights or restrictions.
- Unique Data. Includes serial number, issue date, and other important elements to verify ownership.
How to get a share certificate online?
General steps for obtaining an electronic share certificate include:
- Corporate requirements. Review of company rules and agreements to ensure that electronic share certificates can be created. If not, corporate documents need to be amended.
- Board approval. Holding a board meeting to approve the issuance of shares in electronic or physical form. Documenting the decision in the minutes of the meeting.
- Selection of platform or software. It is necessary to select an online system designed to manage the company’s shares that allows the creation of electronic share certificates.
- Data Entry. Enter the required details into the selected platform. Generally, this is information such as shareholder name, number of shares, issuance date, and other information.
- Certificate generation. The certificate must be digitally signed or have some form of protection.
- Record keeping. Record the electronic share certificate in the company’s official shareholder register to ensure that ownership is accurately tracked.
How to check the share certificate status?
Checking the status of a share certificate depends on whether it was issued physically or electronically. To check the status of a share certificate, it is recommended to check the official share register of the company, where the issuance of certificates is recorded. Alternatively, it is recommended to use a special online platform if the certificate was issued electronically.
How much does it cost to replace a lost share certificate?
The cost of replacing a lost share certificate may vary by jurisdiction. The cost may include administrative fees and the cost of liability insurance to protect the company against possible fraud.
- For example, under §2, p. 237 of the Indian Companies Act, the replacement of a certificate can be done for a fee of twenty rupees.
- In other jurisdictions, the cost may be considerably higher, ranging from 1%-5% of the value of share certificates.
How to obtain a share certificate?
- Corporate Requirements. Review the company’s rules and agreements to determine how to obtain a share certificate.
- Filing an application. Submit a formal request to the company for a share certificate. This request is generally sent to the secretary.
- Board approval (Optional). If the number of shares is large, it may require the approval of the board of directors. Documenting the decision in the minutes of the meeting.
- Verification of ownership. Once the company has received the application, it will check the applicant’s details against shareholder records to confirm that the applicant owns the relevant shares.
- Certificate production. After verification, the company will create a certificate containing essential information.
- Compliance. It is necessary to ensure that the share certificate complies with applicable laws and company rules.
- Record keeping. Record the share certificate in the company’s official shareholder register to ensure that ownership is accurately tracked.
