We allotted shares to the founders - when must the share certificates go out, and do they need stamp duty?

You have set up the company. Money has gone in. The board has allotted shares to you and your co-founders. Then someone asks: "Where is my share certificate?"

The Companies Act 2013 treats the certificate as a duty with a clock on it. This article covers only the first certificate, after an allotment. It does not cover certificates after a later transfer between shareholders.

Where you stand today

Two situations are common.

Case 1: the founders are subscribers to the memorandum. They signed the company's founding document and took shares by subscribing to it, so no later allotment was needed for those shares.

Case 2: the shares were allotted later. A new founder joined, or the company issued more shares to the existing founders after incorporation.

In both cases the company owes each shareholder a share certificate, unless the law or a court or other authority stops it from delivering one.

The certificate matters for a plain reason. A certificate specifying the shares held by a person is prima facie evidence of that person's title to the shares (s.46(1), Companies Act 2013). "Prima facie" means: taken as true unless someone proves otherwise. For a founder who later wants a loan, an investor, or a clean exit, that is the paper everyone asks for first.

The deadline clock

The rule is in section 56(4) of the Companies Act 2013. Every company must, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificates of all securities allotted, transferred or transmitted within these periods:

• Subscribers to the memorandum: within two months from the date of incorporation (s.56(4)(a), Companies Act 2013).
• Any other allotment of shares: within two months from the date of allotment (s.56(4)(b), Companies Act 2013).

Transfers and debentures have their own periods in the same sub-section. We leave them aside here.

Put the two-month date on a calendar the day you allot. Have a CA confirm the exact date on your facts.

One more point. The word is "deliver". Printing the certificate is not enough. It must reach the shareholder within the period. Keep proof: a signed acknowledgement, or a courier receipt.

What happens if you miss it

Section 56(6), Companies Act 2013 says that where any default is made in complying with sub-sections (1) to (5) of the section, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees. Sub-section (4) is one of those sub-sections. So a missed certificate deadline is within that penalty.

Read that carefully. It names the company and every officer in default. In a small founder-run company, the officers in default are usually the founders themselves. The penalty is personal as well as corporate.

What a valid share certificate must contain

Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014 deals with certificates of shares where the shares are not in demat form (electronic form). It sets out these requirements:

• Board resolution first. No certificate is issued except in pursuance of a resolution passed by the Board (rule 5(1)(a), Companies (Share Capital and Debentures) Rules, 2014). The same sub-rule also requires the letter of allotment or fractional coupons to be surrendered, in cases where such a letter was issued. Founders in a new company usually do not have one. If a letter of allotment is lost or destroyed, the Board may impose reasonable terms on evidence, indemnity and expenses (proviso to rule 5(1)).
• The right form. Every certificate must be in Form No. SH.1 or as near thereto as possible. It must name the person or persons in whose favour it is issued, the shares it relates to, and the amount paid up on them (rule 5(2), Companies (Share Capital and Debentures) Rules, 2014).
• The right signatures. If the company has a common seal, the certificate is issued under the seal and the seal is affixed in the presence of, and signed by, two directors duly authorised by the Board (or a committee of the Board, if so authorised) and the secretary or another person authorised by the Board (rule 5(3), Companies (Share Capital and Debentures) Rules, 2014).
• No seal? Two signatures. If the company does not have a common seal, the certificate is signed by two directors, or by a director and the Company Secretary, where the company has appointed one (provisos to rule 5(3); also s.46(1), Companies Act 2013).
• One director who is not a managing or whole-time director, if the board allows. If the composition of the Board permits it, at least one of the two signing directors must be a person other than a managing director or whole-time director (second proviso to rule 5(3)).
• One Person Company. A different signing rule applies. The third proviso to rule 5(3) says the share certificate is issued under the seal, if any, affixed in the presence of and signed by one director or a person authorised by the Board and the Company Secretary or any other person authorised by the Board. Where there is no seal, the persons in whose presence the seal is required to be affixed sign.
• Digital or printed signatures. A director is deemed to have signed if the signature is printed as a facsimile signature by a machine or engraving or lithography, or is digitally signed. A rubber stamp does not count. The director stays personally responsible for the safe custody of the equipment used (explanation to rule 5(3)).

Enter it in the register of members

Issuing the certificate is not the last step. The particulars of every share certificate issued must be entered in the Register of Members maintained under section 88, along with the names of the persons to whom it has been issued, indicating the date of issue (rule 5(4), Companies (Share Capital and Debentures) Rules, 2014).

Stamp duty on the certificate

Share certificates are listed in Schedule I of the Indian Stamp Act, 1899, under Article 19. The article covers a certificate or other document evidencing the right or title of the holder to any shares in an incorporated company (Article 19, Schedule I, Indian Stamp Act, 1899).

Stamp duty is a state subject. Different state versions of the schedule carry different duty on that article. Check the schedule of the state whose law applies to your company, and pay the stamp duty that state's schedule requires. We do not state a figure here, because the figure is state-specific.

A founder question: what if we hold shares in demat form?

Section 46(4), Companies Act 2013 says that where a share is held in depository form, the record of the depository is the prima facie evidence of the interest of the beneficial owner. Section 56(4) has a proviso as well: where securities are dealt with in a depository, the company shall intimate the details of allotment of securities to the depository immediately on allotment.

A private company that is not a "small company" now has a demat duty under rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, inserted by G.S.R. 802(E) dated 27 October 2023. In summary:

• It must issue securities only in dematerialised form, and facilitate dematerialisation of all its securities (rule 9B(1)).
• The company must comply within eighteen months of closure of a financial year ending on or after 31 March 2023 in which it is not a small company as per audited financial statements (rule 9B(2)).
• Before any offer of securities, buyback, bonus or rights offer after that date, the entire holding of promoters, directors and key managerial personnel must already be dematerialised (rule 9B(3)).
• A holder who wants to transfer, or who subscribes to securities, must hold the securities in dematerialised form first (rule 9B(4)).

Who is a "small company"? Section 2(85) of the Companies Act 2013 describes it as a company, other than a public company, within set limits of paid-up share capital and turnover. Under the Companies (Specification of definition details) Amendment Rules, 2025 (G.S.R. 880(E), 1 December 2025), paid-up capital and turnover of a small company shall not exceed rupees ten crores and rupees one hundred crores respectively.

A company that is a holding or subsidiary company, or a company registered under section 8, is not a small company, among other exclusions in the definition (s.2(85), Companies Act 2013). Rule 9B tests the position on the last day of a financial year, from the audited financial statements, and gives a company eighteen months from the close of that year to comply (rule 9B(2)). So a founder company that is a small company is outside rule 9B and issues paper certificates as above. If your company is, or may become, a non-small private company, ask your CA when rule 9B starts to bind it, and whether your first certificates should be in demat form.

Step by step

• Day of allotment. Pass the board resolution allotting shares. Note the date.
• File the allotment return (for an allotment after incorporation). The company must file Form PAS-3 with the Registrar within thirty days of an allotment, with the fee under the Companies (Registration Offices and Fees) Rules, 2014, and a list of allottees (rule 12(1) and (2), Companies (Prospectus and Allotment of Securities) Rules, 2014). Founders often miss this while thinking only about certificates. This thirty-day return is separate from the two-month certificate deadline. Check the fee on the MCA portal before you file.
• Prepare the certificates. One per shareholder (or per lot), in Form SH.1 or as near thereto as possible, showing the name, the shares and the amount paid up.
• Board approves issue, then sign. Two directors, or a director and the Company Secretary if there is no seal.
• Pay stamp duty per your state's schedule.
• Deliver within two months. Keep the receipt.
• Update the Register of Members with the holder and date of issue.

What not to do

• Do not wait for a founder to ask. The duty is the company's, and the clock runs from allotment or incorporation, not from the request.
• Do not back-date. If the certificate is late, show the true date of issue in the register.
• Do not assume demat does not apply to you without checking whether you are a small company.

What to do now

• Next step: Confirm each founder's allotment date, pass the board resolution to issue certificates in Form SH.1, have two directors sign, and deliver them (rule 5, Companies (Share Capital and Debentures) Rules, 2014).
• Deadline: Two months from the date of incorporation for subscribers to the memorandum, or two months from the date of allotment for any other allotment (s.56(4)(a) and (b), Companies Act 2013).
• Consequence of missing it: The company and every officer in default are liable to a penalty of fifty thousand rupees (s.56(6), Companies Act 2013).

Have a CA review your facts before you act or file.

FAQs

1. We allotted shares at incorporation. Does the two months run from the date of incorporation?
For subscribers to the memorandum, yes. The period is two months from the date of incorporation (s.56(4)(a), Companies Act 2013). For any later allotment, it is two months from the date of allotment (s.56(4)(b)).

2. Can we skip the certificates because we keep a register of members?
No. The Act says every company shall deliver the certificates, unless prohibited by law or an order of a Court, Tribunal or other authority (s.56(4), Companies Act 2013). The register does not replace the certificate.

3. Who signs the certificate if we have no common seal?
Two directors, or a director and the Company Secretary where the company has appointed one (proviso to rule 5(3), Companies (Share Capital and Debentures) Rules, 2014; s.46(1), Companies Act 2013). Signatures may be digital or printed facsimile. A rubber stamp does not count.

4. Is the penalty on the company or on us personally?
Both. Section 56(6) names the company and every officer of the company who is in default (s.56(6), Companies Act 2013).

5. We are a private company and an investor wants demat. Do we have to switch?
If you are not a small company, rule 9B requires you to issue securities in dematerialised form and facilitate dematerialisation of all your securities, within the period in the rule (rule 9B(1) and (2), Companies (Prospectus and Allotment of Securities) Rules, 2014). A small company is outside that duty. Have a CA confirm which side of the line you are on.

6. We lost a founder's certificate. What now?
A duplicate certificate of shares may be issued if the certificate is proved to have been lost or destroyed, or has been defaced, mutilated or torn and is surrendered (s.46(2), Companies Act 2013). The detailed procedure is in rule 6 of the Companies (Share Capital and Debentures) Rules, 2014. Check it with your CA before you issue.

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See Also

• Moving Shares Between Founders? Transfer Deeds, Certificates and Timelines Under Sections 46 and 56
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