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Doubt regrding issue of share warrant

R.Sankaranarayanan (Indirect Tax Executive) (163 Points)

12 December 2008

I would like to know when a private limited indian company can issue share warrant. Please give suggestions.

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Prabeer (B. COM (H) CA & CS Final) (5484 Points)
Replied 12 December 2008

Dear R.Sankaranarayanan, as per my knowledge a Pvt Company can't issue share warrant.

You must first know what a share warrant is. It is a document which a public company issues is conformity with the statutory requirements ; it is issued under the common seal of the company and states that the holder of the warrant is entitled to certain number of shares specified therein. It is a bearer document and the title to the shares specified

therein can be transferred by mere delivery of the share warrant. To that extent, it is a negotiable instrument. Under Section 114 of the Act, the issue of such share warrant can be made only if the company is so authorised by its articles and permission of the Central Government has been obtained (Table A contains regulations permitting issue of share warrants). Further, share warrants to bearer can be issued only in respect of fully paid shares. Dividend coupons are attached to the share warrants providing for the payment of future dividends on the shares specified in the warrants.

The particulars under Section 115 which must be entered in the Register of Members upon the issue of a share warrant are as follows, namely :

(i) the fact of the issue of warrant ;

(ii) a statement of the shares included in the warrant, distinguishing each share by its number; and

(iii) The date of the issue of warrant.

A private company cannot assume power in its articles to issue share warrants. Since share warrants are transferable by delivery, such a condition would be opposed to the restriction on transferability which is an essential requirement in the case of a private company.

The articles of a public company may provide that the bearer of a share warrant shall be deemed to be a member of the company for the purposes defined by the articles.

However, holding of a share warrant does not operate as a qualification for being a director of a company, where such is required under the articles. On the issue of a share warrant to a member, his name must be struck off the Register of Members, But the bearer of warrants shall, subject to the articles of the company, be entitled on surrendering the warrant for canceling and paying such fee to the company as may be prescribed from time to time by the Board of Directors, to have his name entered as a member in the Register of Members. The company shall be responsible for any loss incurred by any person by reason of the company entering in its Register of Members the name of a bearer of share warrant in respect of the shares therein specified without a warrant being surrendered or cancelled.