Section 46 of Companies Act. Certificate of shares

“(1) A certificate, ¹ [issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary], specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares.

(2) A duplicate certificate of shares may be issued, if such certificate —

(a) is proved to have been lost or destroyed; or

(b) has been defaced, mutilated or torn and is surrendered to the company.

(3) Notwithstanding anything contained in the articles of a company, the manner of issue of a certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register of members and other matters shall be such as may be prescribed.

(4) Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.

(5) If a company with intent to defraud issues a duplicate certificate of shares, the 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 but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.”

Decoding Section 46 of Companies Act 2013

The Section 46(1) explains the definition of certificate of shares:

‘A certificate that specifies the shares held by any person is referred as share certificate.’

In simple words, a share certificate is a written document that serves as legal proof of the ownership of the number of shares a person carry on behalf of the company signed by either:

Common seal of the company
Two directors
One director and one Company secretary

Certificate under Section 46 of Companies Act

This certificate, which serves as a tangible testament to your ownership interest in a corporation, is an essential component of your ownership. The company can issue a share certificate in either physical or, electronic form. The effect of share certificates can be described as:

Establishes legal ownership:

The person holding the share certificate has the ownership of those shares which he has purchased in any corporation. The Companies Act,2013 provides the legal value to this ownership.

Transfer of ownership under Section 46 of Companies Act:

The transfer of shares means voluntary transfer of shares by a member of a company in favour of another person. Section 44 empowers companies to set their own rules in their articles. Common methods of transfer include:

2.1) Direct transfer:

You may follow the guidelines in the articles to sell your shares or debentures to another individual directly.

2.2) Transfer through the stock exchange:

For listed companies, shares can be bought and sold on stock exchanges like the NSE or BSE.

2.3) Transmission:

According to the articles of incorporation and succession rules, shares or debentures of a deceased shareholder may be distributed to their legal heirs.

Shareholder participation:

The person who purchases a share in the corporation becomes the shareholder of the company and takes part in important decisions of the company.

Shareholder identity:

The person having the share certificate is regarded as the shareholder of the corporation. The certificate of shares act as the identity proof of the shareholder.

Legitimacy in trading:

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. The shares are transferred very transparently to the purchaser of the share.

Consequence of losing Certificate

The section 46(2) provides for the situation in which the shareholder has lost the certificate of share that was allotted to him. It states that a duplicate copy of certificate of share shall be issued to him only: –

If he proves that the original certificate have been lost or destroyed.
If the certificate has been defaced, mutilated or torn and is surrendered to the company.

The process of issuance of the certificate of shares or the duplicate copies of certificates is independent of the articles of association of the company.

Method of issuing Certificate

The certificate of shares are generally issued in two ways: –

Physical share certificates
Digital certificates

Many companies now only issue electronic certificates, readily available online. These are convenient and efficient than the physical certificate.

The section 46(4) states that if the share is held in depository form, the record of the depository is the conclusive proof of the interest of the beneficial owner.

Penalty for violation under Section 46 of Companies Act

If the company having the intention to defraud someone issues a duplicate certificate of shares then the company will be held liable for the punishment with: –

fine which shall not be less than five times the face value of the shares involved in the issue of duplicate certificate,
but may extend to its ten times the face value of the shares or ten crore rupees whichever is higher, and
Every officer of the company shall be liable under section 447.

The punishment is provided under section 46(5) of the Act.

Conclusion: Beyond the Basics

The financial world relies heavily on share certificates, which are essential because they offer concrete evidence of ownership, make transactions easier, and guarantee transparency. Although the digital future seems imminent, the fundamentals of secure ownership and transparent record-keeping will always be important. As technology advances, share certificates’ management will change, but their importance in maintaining integrity and trust in the financial markets won’t.

FAQ’s

Q1) What is a share certificate?

This certificate, which serves as a tangible testament to your ownership interest in a corporation, is an essential component of your ownership.

Q2) What do you mean by stock certificate?

The stock certificate is a certificate that includes information such as such as the number of shares owned, the date of purchase, an identification number, usually a corporate seal, and signatures.

Q3) Can someone sell their share certificate?

The share certificate can be transferred to someone only when the other person has purchased the shares.

Q4) What is the face value of share certificate?

The face value or nominal value of the shares listed on the share certificate must correspond to the company’s articles of association and memorandum of association.

Q5) Can someone could sell shares without a certificate?

The certificate must be endorsed in order to be sold; thus, the answer is no, but you can have your paper certificate reissued.

Q6) What if someone lost their share certificate?

The section 46(2) provides for the situation in which the shareholder has lost the certificate of share that was allotted to him. It states that a duplicate copy of certificate of share shall be issued to him only: –

If he proves that the original certificate have been lost or destroyed.
If the certificate has been defaced, mutilated or torn and is surrendered to the company.

Q7) Can share certificates be in joint names?

Companies should list the names of each joint holder, preferably with the senior holder’s name and service address listed first; the addresses of the other joint holders are not essential. It is common practice to issue a single share certificate per joint shareholding.

Q8) How to check the current share value?

The share value varies day to day therefore it can be checked from the newspaper or internet.

Q9) Can someone sell their own shares?

If a person carries the shares directly then they can sell their shares through digital means or broker.

Q10) How long are share certificates valid for?

The certificate of shares do not contain any last date of validity.

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Section 46 of Companies Act 2013

Aayush Aman

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