Section 45 of Companies Act. Numbering of shares. “Every share in a company having a share capital shall be distinguished by its distinctive number: 

Provided that nothing in this section shall apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository.”

Share Numbering: Beyond Just a Sequence

Why any share is numbered in the company? Do these numbers are merely sequence or have any other meaning? All these queries will be answered in this blog. Unique numbering of shares serves a crucial function in the domains of corporate governance and finance. Unique numbering of shares serves a crucial function in the domains of corporate governance and finance.

Simplifying the Section 45 of Companies Act 2013:

The section 45 of Companies Act 2013 clearly specifies that every share that has been issued to the shareholders are designated a unique and distinctive number so that they can be distinguished easily.

However, the section also imposes restriction of its reach on the shares that are held by those persons whose name are provided as beneficiary interest holder in such share in records of a depository.

The essential ingredients of Section 45 of Companies Act can be classified as:

• Shares:

These stand for a portion of the company’s ownership. Different kinds of shares, such as equity and preference, have different rights and benefits.

• Share Capital:

Share capital is the fundamental nature of any firm, representing funding and ownership. It is crucial for investors and businesses to understand the various kinds of share capital and the regulations that govern to them.

• Holder of Beneficial Interest under:

As per section 89 of the Centre for Corporate Governance Research and Training (ICSI-CCGRT), holder of beneficial interest is defined as “A beneficial interest is the right to receive benefits on shares held by another party. Beneficial interest is often referred to in matters concerning trusts, whereby one has a vested interest in the trust’s assets. A beneficial interest is “that right which a person has in a contract made with another (third party)”.”

• Records of Depository:

A depository means any establishment, including a building, office, or warehouse, where items are placed for safekeeping or storage. Moreover, the Rukes of the Depository under chapter 24 defines the record of depositors as “a record provided by the Depository to a listed corporation”

Important advantages of Sequencing Section 45 of Companies Act 2013

• Tracking Ownership: 

Like a fingerprint, each unique number distinctly identifies the particular share and its owner, enabling streamlined record-keeping, dividend distribution, and voting rights assignment.

• Facilitating Transfers:

The sequencing enables the smooth flow of trading of shares or transferring ownership because the unique numbers avoid any sort of confusion that can potentially lead to financial fraud.

• Combating Counterfeiting:

Since each number is unique, it serves as a security feature that makes it nearly impossible to generate counterfeit shares and makes it easy to identify and remove any fraudulent attempts.

• Enhancing Transparency:

The Public trading companies are necessarily required to maintain a central registry of issued shares that can be made available to the regulators and investors whenever they need them. The numbering system plays a vital role in ensuring the transparency of the registries so that all these registries are accurate.

Numbers with Nuances

 The numbers allotted to the shares works as a simplified concept however it also involves various complexities which arises out of certain specific conditions such as:

• Sequential vs. Non-Sequential:

Generally, the order of providing number on the issue of shares are sequenced. This trend is followed by majority of the companies however some of the companies does not provide for sequential numbering and they prefer non-sequential numbering system for special reasons such as issuing bonus shares with different numbering ranges.

• Multiple Share Classes, Multiple Systems:

Companies may use distinct numbering systems to differentiate between ownership rights and privileges for different share classes, such as equity and preference.

• Consolidations and Mergers:

Consolidating current numbering systems may be essential as a result of mergers and acquisitions; meticulous planning and mapping must be performed to ensure a seamless integration.

Legal Implications of Numbering

We have gained the knowledge of the fact that why numbering of the shares are important now we dive into the legal implications that numbering of shares possess.

• Compliance with regulations and auditing:

The share numbers either be it of equity shares or preferential shares plays a crucial role in the financial audit of the company and compliance with the regulatory authorities.

• Disputes of the Shareholders:

The fundamental necessity of numbering the shares is to resolve the dispute relating to ownership of the shares among shareholders. The unique numbering aids in providing solution to the dispute.

• Litigation and Investigations: 

Accurate share identification based on numbers is a prerequisite for clarifying possible irregularities or fraudulent activity during legal proceedings or investigations.

Maintaining the Record under Section 45 of Companies Act 2013

The rule for numbering of shares states that every company that has share capital should have unique numbering in order to distinguish two shares from each other. The share numbers are maintained by the company.

An organization’s financial status at the conclusion of an accounting period is reported on the balance sheet. The accounting period may vary from company to company. There are some companies that maintain the balance sheet at quarter end whereas there are companies that prefer maintaining the record month- end or even year- end.

If in any case one needs to find the company’s balance sheet, it can be made available to them upon filling the Securities and Exchange Commission (SEC). The 10K and 10Q are the most common form of information.

Content of the Balance Sheet

The balance sheet of a corporation is an accounting document that lists its assets, liabilities, and shareholder equity as of a certain date.

1. Assets: – The items of the company that can be converted into cash are known as assets of the company. They are of two types:
   1. Current Assets
   2. Long term Assets

2. Liabilities: – The liabilities refer to the amount of money that are borrowed by the corporation as loans and expenses. They are of two types:
   1. Current liabilities
   2. Non-current liabilities

The balance sheet of the company contains enormous valuable information. The following are the contents of the balance sheet: –

1. Information on assets like goodwill.
2. Inventories
3.  intangibles, accounts receivable,
4. P&E (property, plant & equipment)
5.  liabilities like tax information, accounts payable, financing, etc.

Conclusion: Beyond the Basics

The numbering of shares may seem very trivial in nature however, it plays a crucial role in maintenance of order and transparency in the corporation. It helps in smooth transaction of ownerships from one shareholder to other. This share number ensures that the company can actively combat with financial frauds and ensure accurate record keeping. The basic principle behind keeping the number on shares was to provide uniqueness and make the shares traceable in the stock market.

FAQ’s

Q1) What is an example of numbering of shares?

If a company has 5,000 outstanding shares, there will be a share numbered as 1, another one as 2… until the 5,000th. The owner of each share will get a certificate mentioning the share number.

Q2) Do share certificates need to be numbered?

Yes, the share certificate is required to be numbered. The certificate has number such as 1,2,3, 4..etc.

Q3) What is basic number of shares?

The current number of shares that is available in the secondary market is known as the basic share.

Q4) What is the law for numbering of shares in a company?

The rule for numbering of shares states that every company that has share capital should have unique numbering in order to distinguish two shares from each other.

Q5) What is the number of issued shares?

Every company maintains a balance sheet of the stock in which it mentions the shareholders name along with the number of shares acquired or purchased by them in the company. The number of shares is the record of that balance sheet.

Q6) Who decides number of shares a company has?

At the time of the incorporation of the company the number of shares are assessed. Any increase or decrease in those shares can be done only after the approval of the shareholders.

Q7) Can the number of shares be increased automatically?

The number of shares are fixed when it comes into the market. The number of shares that was authorised previously can’t be increased without prior approval of the shareholders.

Q8) What is the formula for outstanding shares?

The formula for calculating outstanding shares of the company is: –

Number of outstanding shares = Number of shares issued – Number of shares held.

Q9) What is difference between stock and share?

The stock is the partial ownership of the stock holder in multiple companies however the share is the single unit of ownership in a company.

Q10) What is the unique share certificate number?

Every share of the company has been allotted a different number. This different number does not resemble with any other number therefore makes a share unique with its certificate number.