# Certificate of Shares — Section 46

## Concept

A share certificate is a document issued by a company under its common seal (if any) certifying that a person named therein holds a specified number of shares. It is the prima facie evidence of title.

> Note: Share certificates exist only for shares held in physical form. For shares held in demat (depository) form, the record of the depository serves as evidence.

## Section 46(1) — Physical shares: prima facie evidence

A certificate specifying shares held shall be prima facie evidence of title if issued under any of the following authentications:

(a) Under the common seal, if any, of the company; OR

(b) Signed by two directors; OR

### Important notes

1. Common seal is optional since 29-05-2015 (Companies Amendment Act, 2015). So a physical certificate signed by two directors, or by one director + CS, is valid.

2. If the composition of the Board permits, at least one of the two signing directors must not be the MD or WTD (to provide independent authentication).

3. Facsimile signatures — a director is deemed to have signed if his signature is printed as facsimile by machine, engraving, lithography or digital signature. Rubber stamp is NOT permitted. The director remains personally responsible for safe custody of the facsimile machinery.

## Section 46(4) — Demat shares

Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.

## Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014

Applies only to shares not in demat form.

### Pre-requisites for issue

Share certificate is issued upon surrender of letter of allotment or fractional coupons of requisite value — except in cases of:

Issues against letters of acceptance or renunciation, or
Bonus shares.

Issue must be pursuant to a Board resolution.

### Form of share certificate

Form SH-1 (or as near thereto as possible). It must specify:

(a) Name(s) of the person(s) in whose favour issued

(b) Shares to which it relates

### Recording in Register of Members

Particulars of every share certificate must be entered in the Register of Members maintained under Section 88, with the name(s) of holders and date of issue.

## Negotiability & joint holding

1. A share certificate is NOT a negotiable instrument.

2. Where shares are held jointly, only one certificate is issued. Delivery to any one joint holder = delivery to all.

Worked example

### Example 1

Example 1 — Valid signing

ABC Ltd has a Board of 5 directors including 1 MD. It issues a share certificate signed by the MD and another director, with no common seal affixed. Is the certificate valid?

Answer: It is signed by two directors as required by Section 46(1)(b), but at least one signatory should be a director other than the MD/WTD if the Board composition permits. Hence the second signatory should be a non-MD/non-WTD director.

### Example 2

Example 2 — Rubber stamp signature

A company issues certificates with the director's signature affixed via rubber stamp. Is this valid?

Answer: No. The Act allows facsimile signatures via machine, engraving, lithography, or digital signing, but expressly disallows rubber stamps.

### Example 3

Example 3 — Demat shares

Mr. X holds 1,000 shares of XYZ Ltd in demat form. What is the prima facie evidence of his title?

Answer: The record of the depository (NSDL/CDSL) — not a physical share certificate.

⚠️ Common exam mistakes

Believing common seal is mandatory — it has been optional since 29-05-2015.
Allowing the MD and the WTD together to sign — at least one signatory should be other than MD/WTD if Board composition permits.
Permitting rubber-stamp signatures — only true facsimile/digital methods qualify.
Treating share certificates as negotiable instruments — they are NOT.
Issuing separate certificates to each joint holder — only ONE certificate is issued for joint holdings.

Bare-Act text Section 46 · Companies Act, 2013 · click to expand

Section 46(1) — A certificate, issued under the common seal, if any, of the company or signed by two directors or by a director and the Company Secretary, wherever the company has appointed a Company Secretary, specifying the shares held by any person, shall be prima facie evidence of the title of the person to such shares. Section 46(4) — Where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner.

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