Share purchase agreement

Time Limits for Allotment and Issue of Share Certificates

Share Certificate

On-time allotment of shares is a mandatory function of the Company and also, as per Companies Act, Share certificate should be issued within the statutory time frame. In this article we shall discuss about the issuance of Share Certificates.

What are Share Certificates?

Share certificate is a document that is issued by a company evidencing that a person named in that certificate is the owner of the company’s shares. As per Companies Act, companies are required to issue share certificate post their incorporation.

Time limit for issuing share certificates

The time limit for Allotment of shares means the appropriation of a certain number of shares to an applicant in response to his application for shares, i.e., the distribution of shares among those who have submitted a written application on a predetermined basis.

The company should issue the share certificate within two months after the incorporation of the company. In case where additional shares are allotted to new or existing shareholders, the share certificate has to be issued within two months period from the allotment date.

In case related to share transfer, the share certificate should be issued to transferees in one month of receipt of the instrument of transfer by such company.

Allotment and Issue of Share Certificates

There are certain restrictions related to timelines within which securities are to be allotted after the company has received Share Application money and within which the share certificates are to be issued.

READ  Share Purchase Agreement: Importance and Key Contents in Drafting

By the Companies Act, 2013[1], a public or private company may issue securities in any of the following manners:

Public Company-

  • To the public through issue of Prospectus
  • Private Placement
  • Rights Issue or a Bonus Issue

Private Company-

  • Rights or Bonus Issue
  • Private placement

The time limits for allotment of securities and issuance of security certificates are as under:

Allotment of Securities

S. No.ParticularsExplanation
1.Allotment within 60 daysAllotment shall be done within 60 days of receipt of application money.
2.If not allotted within 60 days, refund in next 15 daysIf Allotment is not done within 60 days then refund the whole application money within next 15 days.
3.If not refunded within 15 daysRefund application money along with interest @12% p.a. after the expiry of 60 days and it shall be treated as a public deposit after the expiry of the said 15 days.

The Issue of Share Certificates

S. No.ParticularsExplanation
1.In case of subscribers to memorandumWithin 2 months from the date of incorporation
2.In the event of allotment of sharesWithin 2 months from the date of allotment
3.In the case of transfer or transmission of securitiesWithin 1 month from the date of receipt by the company of the instrument of transfer or intimation of transmission
4.In case of issue of duplicate share certificateWithin 3 months of submission of complete documents and details with the company
5.In case of allotment of debenturesWithin 6 months from the date of allotment

Time limits in the case of a wholly-owned subsidiary of a foreign Company

  • As per FDI Regulations read with FEMA, the share must be allotted against share application money received from non-resident within 180 days of its receipt.
  • Whereas, as per Rule 2(c) (vii) of the Companies (Acceptance of Deposits) Rules, 2014, any amount has been received for the purpose of subscription of shares and shares are not allotted within 60 days of its receipt the same shall be refunded within 15 days from the expiry of 60 days otherwise same shall be treated as deposits.

Penalty for breach relating to Share Certificate

In case of a company making default in complying with the provisions of issuance of share certificate, that company will be punished with minimum 25000 rupees fine that can extend to 5 lakh rupees. Every defaulting officer of that company shall be punished with fine of minimum 10000 rupees and can extend to 1 lakh rupees.

Conclusion

From above, it is quite clear that a company should comply with the provisions related to share certificates or else they would be liable to pay penalty.

Read our article: What is the Procedure for Shares Issue through Bonus Issue?

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