Dematerialised Securities and Share Certificates

Dematerialised Securities

• Every unlisted public company is required to issue securities only in dematerialised form and facilitate the dematerialisation of all existing securities. This requirement was introduced through the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018, coming into effect on 2-10-2018.

### Renewed/Duplicate Share Certificate

• A company can issue a renewed share certificate to replace a defaced, mutilated, or torn original certificate. The company will require surrender of the original certificate before issuing a renewed certificate.
•  A company can replace all existing certificates with new ones after sub-division or consolidation of shares or merger or demerger, without requiring the surrender of old certificates.
•  The renewed certificate must state that it is "Issued in lieu of share certificate No.....sub-divided/replaced/on consolidation."
•  Companies can charge a fee for issuing a renewed certificate, not exceeding `50 per certificate. No fee is required for certificates issued under a scheme of arrangement sanctioned by the High Court or the Central Government.
•  If a shareholder has lost or destroyed their share certificate, they can apply for a duplicate certificate. The board of directors must approve the issuance of the duplicate certificate based on evidence presented by the shareholder.
•  Companies can charge a fee for issuing a duplicate certificate, not exceeding `50 per certificate.
•  Duplicate certificates must clearly state that they are "duplicate issued in lieu of share certificate No......" and prominently stamp or print the word "duplicate."

### Voting Rights

•  Members holding preference shares have the right to vote on resolutions that directly affect the rights attached to their preference shares.
•  Preference shareholders also have the right to vote on resolutions for the winding up of the company or for the repayment or reduction of equity or preference share capital.
•  Preference shareholders' voting rights on a poll are proportional to their share in the paid-up preference share capital of the company.
•  If dividends on a class of preference shares have not been paid for two years or more, preference shareholders have the right to vote on all resolutions placed before the company.
•  When both equity shareholders and preference shareholders are entitled to vote, the proportion of their voting rights is in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up capital in respect of the preference shares.

### Redemption of Preference Shares

•  Preference shares can be redeemed out of:
  • Profits of the company.
  • Proceeds of a fresh issue of shares made for the purpose of redemption.
•  Shares to be redeemed must be fully paid.
•  When redeeming preference shares out of profits, a sum equal to the nominal amount of the shares to be redeemed must be transferred to a reserve called "Capital Redemption Reserve." This amount is maintained with the same sanctity as paid-up share capital, and can only be reduced in the same manner as paid-up share capital.
•  Redemption of preference shares is not considered a reduction of the company's authorised share capital.
•  The company can issue new shares up to the nominal amount of the shares redeemed, and the capital will not be deemed to have been increased.
•  Premium payable on redemption of preference shares for companies whose financial statements comply with accounting standards prescribed under section 133 must be provided for out of the company's profits before the shares are redeemed.

### Transmission of Shares

•  Transmission of shares occurs in cases including death, insolvency, and lunacy of the shareholder.
•  A transfer of any security or interest in a company made by the legal representative of a deceased person is valid as if the legal representative were the holder at the time of the execution of the transfer instrument.
•  The company, upon receipt of a duly stamped instrument of transfer, along with the requisite share certificates and succession certificate, must transfer the shares in favour of the designated recipient.
•  Persons acquiring shares through transmission are entitled to voting rights unless those rights have been suspended by a Tribunal order.

### Transfer of Securities Contravening Laws

•  The Tribunal can direct a company or depository to rectify its register or records when the transfer of securities contravenes:
  • The Securities Contracts (Regulation) Act, 1956.
  • The Securities and Exchange Board of India Act, 1992.
  • The Companies Act, 2013.
  • Any other applicable law.

### Alteration of Share Capital

•  A limited company with share capital can alter the capital clause of its memorandum of association in the following ways, provided the articles of association grant authority to alter:
  • Increase share capital.
  • Reduce share capital.
  • Buy back shares.
  • Issue bonus shares.
  • Issue rights shares.

### Definitions

•  "Authorised Capital" or "Nominal Capital" refers to the maximum amount of share capital that a company is authorized to issue as per its memorandum of association.
•  "Called-up Capital" refers to the portion of share capital that the company has called for payment from shareholders.

This quiz covers the essential aspects of dematerialised securities as per the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018. It also discusses the process of issuing renewed or duplicate share certificates and the conditions under which they are provided. Test your knowledge on these crucial topics in company law.