Page 123 - DCOM106_COMPANY_LAW

Company Law

Notes Thus, a share of a company in the hands of a shareholder signifies a bundle of rights and
obligations [Viswanath vs. East India Distilleries (1957) 27 Comp. Cas. 175]. But a share is not a
negotiable instrument. [C.I.T. vs. Associated Industrial Dev. Co. (1969) 2 Comp. L.J. 19]
Section 83 requires that each share in a company having a share capital must be distinguished by
its distinctive number.

[The Companies (Amendment) Act, 1999 amended s.82 to the effect that for the word ‘shares’, the
words ‘shares and debentures’ shall be substituted.]

9.1.1 Share vs. Share Certificate

A common man uses ‘share’ and ‘share certificate’ to mean the same. It is, therefore, important
to note the exact differences between the two. Section 82, in this regard describes a share as
“a movable property, transferable in the manner provided by the articles of the company”.
Section 84, on the other hand, describes a ‘share certificate’ to mean “a certificate, under the
common seal of the company, specifying any shares held by any member”. Section 84 further
suggests that a share certificate shall be prima facie evidence of title of the member to such shares.
Thus, whereas ‘share’ represents property, ‘share certificate’ is an evidence of the title of the
member to such property.
Each share bears a distinctive number and it is not the same as share certificate number, the two
are different. In fact, a share certificate may be an evidence of many shares, say 50, 100 or even
1 lakh. Thus, whereas there will be only one number as the share certificate number for one
certificate, there will be as many distinctive numbers in respect of shares as are evidenced by the
share certificate.
Thus, the share certificate, being prima facie evidence of title, it gives the shareholder the facility
of dealing more easily with his shares in the market. It enables him to sell his shares by showing
at once marketable title.
Also, a share certificate serves as an estoppel, as to payment against a bona fide purchaser of the
shares from alleging that, the amount stated as being paid on shares has not been paid. However,
a person who knows that, statements in a certificate are not true, cannot claim an estoppel against
the company.

9.1.2 Share vs. Stock

The share capital of a company is divided into a number of indivisible units of specified amount.
Each of such unit is called a ‘share’. Thus, if the share capital of the company is 5,00,000 divided
into 50,000 units of 10 each, unit of 10 shall be called a share of the company.
The term ‘stock’ may be defined as the aggregate of fully paid-up shares of a member merged
into one fund of equal value. It is a set of shares put together in a bundle. The ‘stock’ is expressed
in terms of money and not as so many shares. Stock can be divided into fractions of any amount
and such fractions may be transferred like share. Such fractions, unlike the shares, bear no
distinctive numbers.

A company cannot make an original issue of the stock. A company limited by shares may, if
authorised by its articles by a resolution passed in the general meeting, convert all or any of its
fully paid-up shares into stock [s.94 (1) (c)]. On conversion into stock, the register of members
must show the amount of stock held by each member instead of the number of shares. The
conversion does not affect the rights of the members in any way.

118 LOVELY PROFESSIONAL UNIVERSITY