Subdivision of shares viz-a-viz subdivision of share certificates

Standard

A. The words “Subdivision of Shares” as stated in Section 61 (1) (d) of Companies Act, 2013 is relating to subdivision of shares into shares of smaller amount than is fixed by the Memorandum of Association of the Company.

It is essential to understand here that the above said section talks about shares not share certificates. “Shares” as defined in section 2 (84) means a share in the share capital of a company and included stock. Share of a shareholder in a company is always measured by total face value of shares he is holding not the share certificates. Thus if the question of subdivision of face value into a smaller amount will arise, this section will be attracted. But if the face value remains intact and only number of share certificates increases or decreases, this section will not apply. Further if the face value as well as number of shares also reduce, it will amount to reduction of capital for which section 66 of the Companies Act, 2013 shall apply.

Example:

Converting 10 share certificates consisting of 5 shares each of face value of Rs.100 per share into

10 share certificates of 10 shares each of face value of Rs.50 per share.

Thus Shareholder who was earlier holding 10 share certificates of 5 shares each of face value Rs.100 per share; after subdivision holds same number of share certificates but consisting of 10 shares each of face value of Rs.50 per share. Thereby total holding in terms of face value remain same i.e. Rs.5000 however number of shares increased from 5 to 10 and face value decreases from Rs.100 to Rs.50.

B.Subdivision of share certificates” means a separate certificate claimed by a shareholder for a portion of his holding whereby shareholder requests to reduce the certificate into smaller number of shares than he holds. (Rule 6(1) of Com (Share Capital and Debentures) Rules, 2014 inter alia deals with subdivision of share certificates.

Example:

Converting 10 share certificates consisting of 5 shares each of face value of Rs.100 per share into

50 share certificates consisting of 1 share each of face value of Rs.100 per share.

Thus Shareholder who was earlier holding 10 share certificates of 5 shares each of face value Rs.100 per share after subdivision of share certificates holds 50 share certificates consisting of 1 share each of face value of Rs.100 per share. Thereby total holding in terms of face value remain same i.e. Rs.5000, total number of shares also remain intact while number of share certificates increased from 10 to 50.

The word “split” has been sometimes used in place of “subdivision” in the Companies Act, 2013 and its Rules.

Process of subdivision of shares:

  1. Authorization in Articles of Association is prerequisite for subdivision of shares.
  2. Conduct Board Meeting and get approval of Board to sub-divide shares into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived.
  3. The listed entity shall inform about the outcome of the Board to stock exchange(s) as soon as reasonably possible and not later than twenty four hours from the conclusion of Board Meeting. In case the disclosure is made after twenty four hours, the listed entity shall, along with such disclosures provide explanation for delay.
  4. Issue notice of General Meeting to shareholders and provide copy of notice and explanatory statement to stock exchange(s) within same time line as mentioned above.
  5. Pass ordinary resolution in General Meeting and again inform the stock exchange(s) within same time line as mentioned above.
  6. File Form MGT-14 and Form SH-7 within 30 days from the date of passing of resolution.
  7. A company may replace all the existing certificates by new certificates upon sub-division or consolidation of shares or merger or demerger or any reconstitution without requiring old certificates to be surrendered subject to compliance with clause (a) of sub-rule (1) rule 5, sub-rule (2) of rule 5 and sub-rule (3) of rule 5 of Companies (Share Capital and Debentures) Rules, 2014 (Manner of issue of share certificates).
  8. Where a certificate is issued on subdivision, it shall be stated on the face of it and be recorded in the Register maintained for the purpose, that it is “Issued in lieu of share certificate No….. sub-divided” and also that no fee shall be payable pursuant to scheme of arrangement sanctioned by the High Court or Central Government.
  9. The particulars of every share certificate issued for subdivision shall be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No.SH.2 indicating against the name(s) of the person(s) to whom the certificate is issued, the number and date of issue of the share certificate in lieu of which the new certificate is issued, and the necessary changes indicated in the Register of Members by suitable cross-references in the “Remarks” column.
  10. The register shall be kept at the registered office of the company or at such other place where the Register of Members is kept and it shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
  11. All entries made in the Register of Renewed and Duplicate Share Certificates shall be authenticated by the company secretary or such other person as may be authorised by the Board for the purposes of sealing and signing the share certificate.

{Reference: Section 61 and 102 of Companies Act, 2013, Rule 6 of Companies (Share Capital & Debentures) Rules, 2014, Regulation 30 and 39 of SEBI (LODR) Regulations, 2015}

Process of subdivision of share certificates:

  1. Share certificates on subdivision can only be issued upon surrender of original share certificates in lieu of which it is issued.

(Therefore request letter for subdivision of share certificates should be accompanied with original share certificates).

  1. The Company may charge such fee as the Board thinks fit, not exceeding fifty rupees per certificate on splitting. However a listed company will not charge any fees for subdivision of share certificates into denominations of the market unit of trading.
  2. The listed entity shall issue certificates on subdivision within a period of thirty days from the date of request.
  3. Since the statute does not specify that who is the competent authority within the company to issue share certificates on subdivision, therefore it is advisable that such certificates should be issued in the manner as applicable in case of transfer and transmission of shares i.e. through Board Meeting or in case of listed company through duly authorized Share Transfer Committee, Compliance Officer, Registrar to an Issue or Share Transfer Agent.
  4. Where a certificate is issued on subdivision, it shall be stated on the face of it and be recorded in the Register maintained for the purpose, that it is “Issued in lieu of share certificate No….. sub-divided”.
  5. The particulars of every share certificate issued for subdivision shall be entered forthwith in a Register of Renewed and Duplicate Share Certificates maintained in Form No.SH.2 indicating against the name(s) of the person(s) to whom the certificate is issued, the number and date of issue of the share certificate in lieu of which the new certificate is issued, and the necessary changes indicated in the Register of Members by suitable cross-references in the “Remarks” column.
  6. The register shall be kept at the registered office of the company or at such other place where the Register of Members is kept and it shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose.
  7. All entries made in the Register of Renewed and Duplicate Share Certificates shall be authenticated by the company secretary or such other person as may be authorised by the Board for the purposes of sealing and signing the share certificate.

{Reference: Section 46 of Companies Act, 2013, Rule 6 of Companies (Share Capital & Debentures) Rules, 2014, Regulation 39 of SEBI (LODR) Regulations, 2015 and Rule 19(3) of Securities Contract (Regulations) Rules, 1957}

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