The number of share certificates held by each member or shareholder determines how much of the company they own and control
When you first set up a limited company, there will be many things you will need to consider. One of the first things would be how to “share” or divide the company with your investors (if any). A company is divided among shareholders via the issuance of shares.
In other words, a share is a piece of the company. Each piece represents a certain percentage of the company. Anyone who holds shares in a limited company is called a ‘shareholder’ or a ‘member’. The number of shares held by each member or shareholder determines how much of the company they own and control.
Basically, shares represent equity holding in a company.
WHAT ARE SHARE CERTIFICATES?
A share certificate validates that on a specific date a person is the certified shareowner in a given company. It is deemed prima facie evidence of the given member’s share of ownership in the company. This means that the shares you own are evidenced by the share certificates you hold. Share certificates for private companies are generally paper certificates.
On the other hand and due to the high volume of shares and trading in public companies, share certificates of public companies are issued and deposited electronically to the shareholder’s Central Depository account instead of given to those companies’ shareholders in hardcopy format.
For the purposes of this article, we will be focussing on private companies.
WHAT INFORMATION SHOULD THE SHARE CERTIFICATES CONTAIN?
Given that share certificates should be able to clearly identify the percentage of shares held by a specific owner, information that allows for such shareholder and the shares that he or she holds to be properly and correctly identified, share certificates should contain the following information:
- The company’s name
- The company’s registration number
- The authority under which the company is constituted
- The company’s registered address
- The shareholder’s name
- Number of shares being issued
- The class of shares
- Whether the shares are fully or partly paid up and the amount (if any) unpaid on the shares
TYPES OF SHARES
The most common types of shares in limited companies are ordinary shares and preference shares. The type of share should be clearly indicated in the share certificate.
In a nutshell, Ordinary shares are shares that represent normal equity ownership in a company. These shares often allow the investor to vote, to receive dividends, and to receive distributions on the winding up of a company. Preference shares, on the other hand, are shares where dividends are paid out to shareholders before ordinary share dividends are issued. If the company becomes insolvent for instance, preference shareholders are entitled to be paid from company assets before the ordinary shareholders. But on the downside, they do not enjoy the voting rights that ordinary shareholders typically do.
On top of ordinary shares and preference shares, there are other share classes such as redeemable shares, management shares etc. which may also be reflected on the share certificates, depending on whether the company issues such shares in the first place.
Where a private company wishes to issue different classes of shares, they can generally do so pursuant to an ordinary resolution of the members.
WHAT ARE FULLY PAID-UP SHARES AND PARTLY PAID-UP SHARES?
As per the name, fully paid-up shares refer to shares which the shareholder has already paid for, in full, prior to the company issuing the shares. Partially paid-up shares, on the flipside, refer to shares where shareholders have not paid the share value in full and the unpaid portion remains due to the company.
It is important to note that shares do not need to be fully paid-up before companies can issue shares (and the certificates for these). These just need to be clearly stipulated on the corresponding share certificate.
THE WHO, WHAT AND WHERE OF SHARE CERTIFICATES
Now that we know what share certificates are, let’s delve into the logistics of who prepares and holds on to the share certificates. It would most likely be the Corporate Secretary who will be preparing the share certificates. In that vein, it would also be the corporate secretary who will be holding onto the original share certificates just to prevent them from getting lost or damaged. The shareholders will usually be given copies of the certificates.
If the shareholders insist on holding on to the original certificates and the company believes that it will stay in touch with its shareholders, then the shareholders may also do so, with the company keeping copies of the same. However, this is not recommended for the reasons set out above.
As a general rule of thumb, share certificates are generally issued on 3 occasions:
- when the shareholders want to transfer shares between themselves or to outsiders
- when the company decides to issue new shares; and/or
- when a shareholder loses his or her share certificate or the certificate is destroyed, defaced or otherwise damaged.
The procedures and the documents needed for the issuance of share certificates in each situation are different and will depend on your company’s constitutive documents.
1) Share certificate required for the transfer of shares
In this scenario, the corporate secretary of the company will need to comply with the measures set out in the constitutive documents of the company.
Most commonly, the documents required are an instrument of transfer such as an agreement between the seller (transferor) and buyer (transferee) to document the transfer and a lodgement of notice of the transfer which is a prescribed form document with the Accounting and Regulatory Authority (ACRA) so that the ACRA is notified.
The transferor of the shares would then have to deliver their share certificate to the company’s registered office for the corporate secretary to cancel before the corporate secretary can issue a new share certificate to the transferee.
If the transferor only transferred a portion of his or her original shares, the corporate secretary will have to issue 2 new share certificates. One to the seller, reflecting the new balance, and another to the buyer.
The new share certificate(s) need to be completed and ready for delivery to their owners within 30 days of the lodgement of the notice of transfer with ACRA.
Once the new shares certificates are issued, the corporate secretary will need to update the company’s register of transfers and register of shareholders.
2) Share certificate required for the Issuance of shares
The directors of the company must get the shareholders’ approval in a general meeting before new shares can be issued.
If this process is not adhered to, the issuance of shares could likely be considered void, meaning that what has been paid for the shares would be recoverable. In other words, if the approval process is not followed, the shares are not deemed to have been issued in the first place.
After the approval, the corporate secretary will assist in preparing the return of allotment of shares with ACRA for a share certificate involving the issuance of new shares. ACRA will need to be notified of the new shareholders’ details plus any increase in the issued and paid-up shares.
The share certificates will need to be complete and ready for delivery to their owners within 60 days after the lodgement of the return of allotment with ACRA. Once the new shares certificates are issued, the corporate secretary will have to update the company’s register of allotments and register of shareholders.
3) Loss/destruction/defacement of share certificate
If a share certificate is lost, defaced or destroyed, the owner can apply to the company for a duplicate certificate to be issued. When doing so, they will need to provide the company with a:
- Statutory declaration that the certificate has been lost, defaced or destroyed, and that the share certificate has not been pledged, sold or disposed of, and proper searches have been made (if the certificate was lost); and
- Written undertaking that if the owner finds the lost certificate, it will be returned to the company.
These are legal documents.
On receipt, the corporate secretary will then assist in the cancelling of the original share certificate, preparing the duplicate share certificate on payment of an administrative fee of up to $2, and updating the register of members and register of allotments.
If the value of the shares is greater than $500, the company may require the shareholder to:
- take out a newspaper advertisement stating that the share certificate has been lost, defaced or destroyed and the owner intends to apply for a duplicate in 14 days’ time; and/or
- Furnish a bond for an amount equal to the shares’ current market value (or more) to indemnify the company against any loss suffered if the original share certificate is found by others.
FOR A SHARE CERTIFICATE TO BE BINDING
For a share certificate to be binding, it must be executed under the common seal of the company. If the company does not have a common seal, the share certificate must be signed on behalf of the company by:
- A director of the company and a company secretary;
- At least 2 directors of the company; or
- A director of the company in the presence of a witness who attests the signature.
Always get in touch with your corporate secretary should any of the above scenarios play out.
*This does not constitute legal advice. Please consult your own independent legal advice.