Difference Between Share Certificate and Share Warrant
Difference Between Share Certificate and Share Warrant
Both share certificates and share warrants are instruments issued by a company to evidence ownership of shares, but they have distinct legal characteristics, modes of transfer, and implications for shareholders.
1. Definition
Share Certificate:
A share certificate is a document issued by a company to a shareholder as evidence of ownership of shares. It contains details like the shareholder’s name, number of shares held, and the class of shares.
Share Warrant:
A share warrant is a negotiable instrument issued by a company to the bearer, which entitles the bearer to the shares mentioned therein. It is transferable by mere delivery without the need for registration of the transfer.
2. Legal Provisions
Share Certificate:
Governed by the Companies Act, 2013, particularly Sections 46 and 46(3) which require companies to issue share certificates to shareholders.
Share Warrant:
Governed by Section 114 of the Companies Act, 2013 (or the earlier Companies Act, 1956) which empowers companies (except private companies) to issue share warrants.
3. Nature and Characteristics
| Feature | Share Certificate | Share Warrant |
|---|---|---|
| Nature | Evidence of ownership, non-negotiable | Negotiable instrument, bearer document |
| Issued to | Registered shareholder | Bearer (holder of the warrant) |
| Transferability | Transfer requires registration and formalities | Transferable by simple delivery (like bearer cheque) |
| Legal Title | Holder named on the register | Bearer of the warrant has title |
| Right to Dividends | Paid to registered shareholder | Paid to the bearer |
| Surrender | Not required to surrender to company during transfer | Must be surrendered to company to exercise rights |
| Use | Commonly used for shareholding proof | Used for anonymity, negotiability |
| Issuance Restriction | Issued to every shareholder | Only allowed for public companies |
4. Transfer Process
Share Certificate:
Transfer requires:
Execution of a share transfer deed.
Approval of the Board of Directors.
Registration of the transfer in the company’s register of members.
Issuance of a new share certificate to the transferee.
Share Warrant:
Transfer is done by mere delivery of the share warrant. No registration or approval is necessary. This makes it more like a bearer instrument.
5. Rights and Control
Share Certificate:
The company maintains a register of members; only the registered shareholder is entitled to vote, receive dividends, and participate in meetings.
Share Warrant:
The bearer of the warrant is entitled to all rights attached to the shares. The company usually requires surrender of the warrant to exercise such rights.
6. Revocation and Cancellation
Share Certificate:
Cannot be revoked unless surrendered for transfer or on grounds of forgery, loss, or mutilation.
Share Warrant:
Can be revoked or canceled if lost or stolen, similar to a negotiable instrument.
Relevant Case Laws
⚖️ Union of India v. Azad Coach Builders Pvt. Ltd. AIR 1969 SC 148
The Supreme Court distinguished between share certificates and share warrants.
It held that a share certificate is evidence of title, whereas a share warrant is a bearer document giving title to whoever holds it.
This case emphasized the negotiability of share warrants, unlike share certificates.
⚖️ Sunil Bharti Mittal v. SEBI (2015) 4 SCC 609
The Court observed the importance of proper issuance and registration of shares.
It highlighted that only the registered holder of shares or the bearer of a share warrant is entitled to rights under the shares.
The case underlined the difference in rights between holders of certificates and warrants.
⚖️ K.C. Paul v. State of West Bengal AIR 1965 SC 1504
In this case, the court discussed the transferability of share warrants.
The ruling reiterated that share warrants being bearer instruments are transferable by mere delivery and no registration is necessary.
Summary Table
| Aspect | Share Certificate | Share Warrant |
|---|---|---|
| Document Type | Non-negotiable evidence of ownership | Negotiable bearer instrument |
| Holder | Registered shareholder | Bearer (anyone holding the warrant) |
| Transfer Mechanism | Transfer deed + registration required | Transfer by mere delivery |
| Rights | Only to registered shareholder | Rights to bearer upon surrendering warrant |
| Company Record | Company maintains register of members | Company may require surrender to update rights |
| Issued By | All companies | Only public companies (not private) |
| Use | Common mode of shareholding proof | Used for anonymity and easy transferability |
Conclusion
Share Certificates are proof of ownership issued to registered shareholders and require formal transfer procedures.
Share Warrants are bearer instruments that confer ownership to whoever holds the warrant and can be transferred easily by delivery.
Share warrants offer ease of transfer and anonymity but are less commonly used today due to regulatory concerns.
Legal recognition and treatment differ, especially regarding transfer, ownership rights, and company control.
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