The issuance of share certificates to all shareholders is a mandatory compliance for all companies registered in India, be it an OPC, a private company or a public company. Such companies are required to issue Share Certificates within 60 days from the date on which the shares were bought, or within 60 days from the date of registration of the company.
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Moreover, the share certificates are required to be stamped within 30 days from the date of issuance of shares. It is necessary that these compliances are fulfilled on time, as a delay would result in the imposition of gruesome penalties. Read the entire article to get a thorough understanding of the need, procedures and penalties of the concerned compliances.
What is a Share Certificate?
All Indian Companies, be it an OPC, a private company, or a public company, are required to issue share certificates to their shareholders as a conclusive legal proof of their contribution to the capital of the company. As soon the shareholders buy the shares issued by the company, they are issued a share certificate under the seal of the company, which implies that they shall henceforth be entitled to the ownership of the company. The details mentioned in a share certificate includes the name, CIN, and the registered office address of the company, the name of the concerned shareholder, the number of shares purchased, and the value at which the shares have been purchased by the concerned shareholder.
Issuing a share certificate is mandatory for the company, within 60 days from the date on which the shares were bought by the shareholders. The Companies Act does not prescribe any specific location from where the share certificates can be issued. Hence, as long as the Board Of Directors are available to call a meeting and approve the issue of the share certificates, they can be issued from anywhere in India. Section 3 of the Indian Stamp Act makes it mandatory for every share certificate to be stamped under the seal of the government. For this, the company shall bear the stamp duty in accordance with their prevailing rates in different states and Union Territories. The stamp duty must be paid even if the share certificates are issued in dematerialized format. It must be noted that the stamp duty on the share certificate is payable on the issue price, and not on the par/ nominal value, of the shares.
What is Share franking and when is it required?
Franking essentially means embossing stamps and stamp duties on documents like the share certificates. It is one of the many ways by which a company pays stamp duty to the government. The detailed process of franking involves impressions made on share certificates using a Franking Machine, which is usually installed in the office of the Sub Registrar or Collector of stamp duty. These machines can affix impressions of up to Rs.999 on stamp paper. An application must be appropriately made to the office of the Sub Registrar with a request letter for franking the share certificates.
What is the procedure of franking and stamping a share certificate?
The procedure for franking and stamping a share certificate varies differently across different states of India and depends on their respective Stamp Acts. This is because stamp duty falls under the jurisdiction of the state governments.
What is the stamp duty on share franking and stamping of Share Certificates?
A recent amendment of the Indian Stamp Rules, effective from 1st July 2020, has changed the rate of stamp duty charged across India. Prior to the amendment, the applicability and the rates of stamp duty on share certificate differed for different Indian states. This created a lot of confusion, chaos, and inconvenience among people. Consequently, the changes made in the new amendment prescribes a uniform stamp duty on share certificates issued across all states in India. The rate of the duty so prescribed is 0.005% of the Value of Share. The affordability of the rate of stamp duty is an added advantage for taxpayers across India. The duty will still be levied and collected by the state governments.
What is the penalty on late payment of stamp duty on Share Certificates?
The stamp duty on Share Certificates must be paid within 30 days from the date of issuance of the Share Certificate. In case on non-payment of the stamp duty within the prescribed deadline, a penalty upto 10 times of the amount of duty payable, can be charged by the concerned authority.
Conclusion
Franking and stamping of the share certificates issued by the company is a major compliance that if neglected, can land the company in a pool of penalties. Thus, it is advisable that the company issues stamped share certificates to all its shareholders as soon as they buy its shares. If you lack the complete information and knowledge of the procedure for applying for stamping of the certificates, you must seek professional guidance and services for the same.
