Capital - Frequently Asked Questions

1. Define share certificate.
A share certificate is a registered 'evidence of title' to the shares, issued by the company under its common seal, duly stamped and signed by one or more directors and countersigned by the secretary of the company, as per Articles.

2. Define share warrant.
'A share warrant is a bearer "document of title" to the shares, issued by the company under its common seal, duly stamped and signed by one or more directors of the company, as per Articles.'

3. What is irregular allotment?
An allotment of shares is irregular:
(1) When it has been made by a public company which invites public to subscribe to its shares:
     (a) without receiving atleast 5 per cent of the nominal value of shares, as application money; or
     (b) without receiving the minimum subscription amount within 120 days of the issue of prospectus; or
     (c) without depositing the money in a scheduled bank.
(2) When it has been made by a public company which does not invite public to subscribe to its shares, without filing with the Registrar the 'statement in lieu of prospectus' atleast three days before the first allotment of shares.

4. What is blank transfer?
When an instrument of transfer, duly signed and completed by the transferor, but leaving the columns of the name and signature of the transferee blank, is delivered to the transferee along with the relevant share certificate, it is called "blank transfer". Shares, in such a case may further be transferred merely by delivering the blank instrument of transfer.

5. What is forfeiture of shares?
Forfeiture of shares means confiscation of the shares of a shareholder by way of penalty for non-payment of any call made in respect thereof. A company has no statutory right to forfeit shares but it may be authorised by express provision to that effect in its articles.

6. What is forged transfer?
When an instrument of transfer bears a forged signature of the transferor, the rightful owner of shares in a company, it is called 'forged transfer'. A forged transfer is a nullity, even though it may have been registered by the company. It leaves the ownership of the shares exactly where it was, i.e., in the so-called transferor.

7. What is split transfer?

8. What is allotment of shares?
Allotment means the appropriation out of the previously unappropriated capital of a company, of a certain number of shares to an applicant by the company (by resolution of the Board of Directors) in response to the application therefor.

9. What is instrument of transfer?

10. What is partial allotment of transfer?

11. What is bonus shares?
A bonus issue occurs where the company does not distribute its profits and reserves by way of dividend, but retains them and uses them to pay for the issue of the new fully paid shares. The shares so issued are called 'Bonus Shares'. Thus issue of bonus shares implies the payment of dividend in the form of shares instead of cash.

12. What is preference shares?
Such shares enjoy preferential rights
(a) as to the payment of dividend at a fixed rate during the life of the company, and
(b) as to the return of capital on winding up of the company.
The preference shareholders do not enjoy normal voting rights like the equity shareholders.

13. What is equity shares?
These shares carry the right to receive the whole of surplus profits after the preference shares, if any, have received their fixed dividends. Same is the case with regard to the return of capital on winding up of the company. The equity shareholders have normal voting rights on every resolution placed before the company at any general meeting.

14. Who is preferential creditors?
Preferential creditors are those creditors who have to be paid in priority to all other unsecured creditors (including those who are secured by a floating charge) after retaining the amount necessary for costs and expenses of winding up proceedings (including the remuneration of the liquidator).

15. What is stock?
Stock in a company means 'a bundle of fully paid shares put together for convenience, so that it may be divided into any amount and transferred into any fractions and sub-divisions without regard to the original face value of the shares.' A company cannot issue stock originally.

16. What is right share?
When a public company decides to make a further issue of share capital as 'Rights Issue' by making an offer of new shares to the present equity shareholders on a pro-rata basis, these shares issued are known as 'Right Shares'.

17. What is certificate of transfer?
When a company certifies on the instrument of transfer that the relative share certificate of the shares proposed to be transferred, has been lodged with it, it is called ‘certificate of transfer.’ Certification of transfer is necessary when there is a part disposal of shares or there are multiple purchasers.

18. What is fractional certificate?
When distributing bonus shares or 'right shares' pro-rata, there may arise a necessity of fractional certificates, e.g., if bonus shares are distributed at the rate of one for every four shares, a fractional certificate shall be issued to a person holding, say fifty shares. Such a shareholder will be entitled to 12.5 bonus shares and may be issued two share certificates, one for 12 shares and the other for one-half of a share. The latter is called a 'Fractional Certificate.'

19. What is balance ticket?
Balance Ticket is a document issued by the secretary after certification of transfer. The secretary sends the Certified Transfer Form(s) and a Balance Ticket for the balance of shares not to be transferred, to the transferor. In case the shareholder disposes of the whole of his holdings to two or more transferees, no 'Balance Ticket' is issued.

20. Define shareholder.

21. Define letter of regret.
Letters of Regret may be defined as "letters that would be sent to those applicants to whom shares could not be allotted and a refund order shall be enclosed with each such letter for the refund of the application money."

22. What is lien on shares?
A lien is a form of security. It is essentially the right to possess and retain property until some claim attaching to it is satisfied. The articles of companies invariably provide that the company shall have a first and paramount lien on all partly paid shares in respect of money due either on the shares or as a result of any other transaction; and this lien shall also extend to all dividends payable thereon.

23. What is transmission of shares?
Transmission of shares is the result of operation of Law and it takes place only on the death, insolvency or lunacy of the share holder. The property in shares passes to a person who is entitled under the law to succeed to the estate of the deceased or lunatic automatically.

24. What is surrender of shares?
Surrender of shares means the return of shares by the shareholder to the company for cancellation voluntarily. It is a shortcut to the long procedure of forfeiture of shares otherwise the causes and effects are the same. A company can accept surrender of partly paid-up shares only.