When incorporating or investing in a business, it is important to obtain a Share Certificate to validate and protect your ownership in a company.
In this guide, we look at Share Certificates, a particularly important aspect that business owners should not ignore.
What is a Share Certificate?
A Share Certificate is a legal document issued by the company to its shareholders, once it has issued shares. Do note that paper Share Certificates are only applicable to private limited companies that are limited by shares (“private limited company”), as shares of public companies limited by shares (“public listed company”) are administered by The Central Depository (“CDP”) and shares are transferred and issued electronically to a shareholder’s CDP account.
A Share Certificate will minimally, fulfill the following requirements:
- State the company’s full name
- State the company’s registration number
- State the number of shares being issued (in numerical form and spelt in full)
- State the shareholder’s name – to whom it is being issued to
In some instances, the Share Certificate will also have a counterfoil, which the shareholder can use to acknowledge receipt of the Share Certificate and return to the company. For proper records, the company should always maintain copies of the Share Certificates issued and be regularly updated on the contact details of its shareholders.
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How is a Share Certificate issued?
As with the minutes book of the company, the preparation and issuance of a Share Certificate is usually done by the company secretary. The company secretary will take note of the following:
- Share Certificate number
- Number of Shares being transferred
- Details of the Shareholder
Thereafter, the company secretary will prepare the Share Certificate. It is ideal that only the company secretary be entrusted with the duty of preparing and keeping track of the Share Certificates issued. This ensures that there is no confusion with share ownership (in the event that two different Share Certificates are issued with the same number) and the company secretary, as the keeper of the registers and the company’s statutory documents, can advise the company on the relevant actions that need to be taken.
The company secretary will advise the company whether it can even issue shares in the first place, as this is contingent on the two following factors:
- Whether the directors have been granted with the authority to issue shares pursuant to Section 161 of the Companies’ Act; and
- If there are processes to be followed when issuing or allotting shares described in the company’s Memorandum and Articles of Association (“M&AA”)
(A) is only applicable to a situation where a company desires to issue new shares. To do so, the company may need to hold an Extraordinary General Meeting (“EGM”) to seek shareholders’ approval to grant the directors with the authority to do so. The company secretary can assist you with preparing the necessary documents in order to do so, which will be done according to the company’s M&AA, as described in (B).
However, in the situation where shares are only being transferred, only (B) would apply. Certain M&AAs do restrict the transfer of shares, e.g. they may require that a notice be sent out to existing shareholders, prior to the transfer of shares.
With any transfer or allotment of shares, the registers of the company’s books will be affected. For example, if it is a new allotment of shares, the company secretary will update the register of allotments and will ensure that the Accounting and Corporate Regulatory Authority (“ACRA”) is notified of the change in the company’s issued and paid-up share capital. If otherwise, auditors will note that there are differences during their statutory audit and may require substantial information or rectification.
When is a new Share Certificate issued?
There are only three scenarios in which a new Share Certificate will be issued, namely:
- Transfer of Shares;
- Allotment of Shares; and
- Loss of Share Certificate.
Despite the fact that all three scenarios will result in a new Share Certificate being issued, the procedures are all significantly different.
1. Transfer of Shares
The transfer of shares means that one shareholder either sells or gives his or her shares to another individual or corporation, who then becomes the new shareholder. Subsequently, the first shareholder will either (i) cease to be a shareholder; or (ii) will continue to be a shareholder, but with a fewer amount of shares.
For both situations (i) and (ii), the company secretary will be required to assist with preparing the following documents to effect the transfer of shares:
- Directors’ Resolutions in Writing (“DRIW”) noting the Transfer of Shares
- Instrument of Transfer
- Relevant form for e-stamping with the Inland Revenue Authority of Singapore (“IRAS”)
- Lodgment with the ACRA
- Cancellation of original Share Certificate
- Preparation of new Share Certificate(s)
Do note that items (c) and (d) do have statutory deadlines within which the company has to comply with. There may be penalties imposed for failing to do so within the stipulated time. Hence, if there is a need to send documents overseas, you may wish to consult your company secretary on the deadlines to be aware of; or request for scanned copies of documents, to avoid unforeseen delays due to the delivery time needed for mails to reach Singapore from overseas locations.
In cases where the first shareholder ceases entirely to be a shareholder, he or she will be required to return his or her Share Certificate to the company, which will then be cancelled by the company secretary.
In situations such as (ii), where only a portion of shares are being transferred, the original Share Certificate will be cancelled, to be replaced by two new Share Certificates that reflect the new distribution of shares.
In both situations, the company secretary will be updating the company’s register of transfers and register of shareholders.
Read More Transfer of Shares
2. Allotment of Shares
An allotment of shares means that the company is issuing new shares out to new shareholders. This means that its total number of issued and paid up shares will increase and the existing shareholders’ shares will not be affected. Hence, there will be no cancellation of shares.
However, as described previously, the company will have to do the extra step of holding an EGM to grant its directors the authority to issue and allot shares. Do note that this authority is only valid for a certain period of time and is usually renewed annually. Other than this step, the company secretary will need to prepare the following documents:-
- DRIW noting the issuance and allotment of shares
- Lodgment with the ACRA
- Preparation of new Share Certificate(s)
Similar to (1), there is also a stipulated deadline within which ACRA needs to be notified of the details of the new shareholder, as well as the increase in issued and paid up shares.
Singapore has no concept of par value; hence the consideration paid for each share may be different. If this is something that you may require, do discuss it with your company secretary, as it will have implications on your records with ACRA, as well as your accounts.
After the new Share Certificates have been issued, the company secretary will update the company’s register of allotments and register of shareholders.
Read More Allotment of Shares
3. Loss of Share Certificate
In a situation where a shareholder informs the company that he or she has lost the Share Certificate, the company secretary will need to prepare the following documentation:-
- DRIW noting the loss of Share Certificate and confirming that the previous Share Certificate is now void
- Preparation of new Share Certificate
Thereafter, the company secretary will update the relevant registers to cancel the old Share Certificate and replace it with the new one.
Who keeps the Share Certificate?
For the sake of convenience, many companies opt for the company secretary to keep to Share Certificate, as this provides assurance against the possibility that the Share Certificate will be lost. In other cases, companies do choose to keep the Share Certificates and provide only copies to its shareholders. Alternatively, if the company absolutely trusts that it will continue to keep in contact with its shareholders; and its shareholders insist, the shareholder may keep the Share Certificate, but it is always recommended that the company and the company secretary keep a copy of the same.
What if a shareholder does not receive a Share Certificate?
To avoid such situations from happening, it is generally advised that shareholders collect and acknowledge receipt of Share Certificates in person. Alternatively, if the company has no choice due to the fact that the shareholder is situated overseas, or for any other reason, the company will have to undertake the risk that the Share Certificate will be lost.
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