A share certificate is a document issued by a company limited by shares which certifies that the person named on it is a shareholder of the company in respect of the shares stated on it.
Why is a Share Certificate Necessary?
Given that a company’s shareholders register is open to inspection to members and non-members (ss114 and 116 CA 2006), why have share certificates at all?
A share certificate provides a way for shareholders to evidence their ownership of the shares in circumstances where the shareholders register is incorrect due to a mistake or fraud. A share certificate which (1) specifies the shares held by a shareholder and (2) is made under the company’s common seal, is prima facie evidence of the named shareholder’s ownership of the shares (s768 CA 2006).[1]
When are share certificates required?
The general rule is that a company must issue a share certificate in relation to an allotment of shares within two months after the allotment (s769(1) CA 2006) and in relation to a transfer of shares within two months following the date on which the transfer of shares is lodged with the company (s776(1) CA 2006). This is usually reflected in the company’s articles of association so that the shareholders can enforce this obligation directly themselves (as is the case under Article 24 of the Model Articles for Private Companies Limited by Shares).
As a person or company (or other business entity with a separate legal personality) does not become a shareholder until their name is entered on the shareholders register (or if a company has made a s218B election to keep shareholder information on a central register, until the person’s/company’s/entity’s name has been delivered to Companies House and registered by Companies House), the issuance of a share certificate cannot precede the corresponding entry in the register (s112(2)-(3) CA 2006). The exceptions to this general rule are:
- The conditions attaching to the issue of the shares in question provide otherwise (s769(2)(a) CA2006 (allotment) and s776(3)(a) CA 2006 (transfer)).
- The shares are allotted or transferred to a financial institution as defined in s 778 CA 2006 (s 769(2)(b) CA 2006 (allotment) and s776(3)(b) CA 2006 (transfer)).
- In respect of a transfer, the transferee is not entitled to a certificate by virtue of regulations made under the Stock Transfer Act 1982 (s777 CA 2006). This essentially relates to specific shares issued by public bodies and certain development banks.
- The company has issued a share warrant in respect of the shares (s 769(2)(c) CA 2006 (allotment) and s776(3)(c) CA 2006 (transfer)). Companies have been prohibited from using share warrants since 26 May 2015.
Form and Content of a Share Certificate
UK law does not prescribe the form or content of a share certificate, but as a bare minimum it is advisable for it to include the shares held and for it to be made under the company’s common seal so that it constitutes prima facie evidence of the named shareholder’s ownership of the shares (s768 CA 2006).
Whether a company has a seal or not, a share certificate that is:
- Executed by one director in the presence of a witness;
- By two directors; or
- By one director and a company secretary
will, if expressed to be executed by the company, have the same effect as if executed under the company’s common seal (s 44(2), (3) and (4) CA 2006).
It is common for share certificates to include a footnote stating that a transfer of shares will not be registered without production of the certificate, however, this itself has not been held to limit a directors’ discretion to register a transfer (Rainford v James Keith and Blackman Company Limited (1905)).
A company’s articles of association usually dictate what a share certificate should contain. Article 24 of the Model Articles (private company) requires that the share certificate includes:
- Number and class of the shares.
- Nominal value of the shares.
- Distinguishing numbers (if any) given to the shares. Shares within a class comprising nil or partly paid shares (or that do not rank pari passu with all other shares in the class) must have a distinguishing number (s543 CA 2006).
Article 24 also states that while a member may hold more than one certificate for shares within the same class, a company cannot issue a share certificate that represents shares of more than one class.
Joint Holders
Article 24 of the Model Articles for Private Companies Limited by Shares states that only one certificate may be issued for any one share. It is common therefore for share certificates in respect of joint shareholdings to list each joint shareholder.
Paragraph 16(3)(b) of Schedule 5 to the CA 2006 states that anything required to be sent to a holder of shares may, subject to the company’s articles of association, be sent to the holder whose name appears first in the register of members.
Replacement Share Certificates
Article 25 of the Model Articles for Private Companies Limited by Shares states that if a share certificate is stolen, destroyed damaged or defaced, the shareholder can ask the company for a replacement. The shareholder must return the share certificate to the company where it is damaged or defaced and comply with conditions imposed by the directors as to: evidencing it is their share certificate (e.g. provision of ID); providing an indemnity for any losses resulting from them not being the shareholder; and payment of a fee. Such conditions are a good idea to protect directors from a claim for breach of directors’ duties.
[1] Prima facie in this context means that the law will assume that they are the owner unless proven otherwise.
Version 1. Issued: 2024 © Floix Limited
