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URGENT query

Ricky Chadha (student) (121 Points)

16 January 2010

Earlier company used to issue share certificates.. but there were share warrants also i know these days demat is used.

but what was the use of share warrant if share certificates were into existence??

thanks!

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3 Replies

Rasesh (CS CWA MBA (Fin) B.Com LL.B (Spl)) (6501 Points)
Replied 17 January 2010

Warrants are instruments which have an option for being converted into shares (equity). The conversion option is to be exercised at the end of a fixed tenure and the conversion price is normally fixed at the time of issue of the warrants.

Ricky Chadha (student) (121 Points)
Replied 17 January 2010

when shares were allloted at that time then firstly shareholder would get warrant or certificate..or it was an option!!!

and why will a shareholder opt for a warrant even if certificates were also there.

Is it because for the ease of transfer??

Thanks sir!

CourseCart.in (Mentor at SHAYVIDZ Academy) (3756 Points)
Replied 18 January 2010

Ricky,

I think below metioned matter vll clarify ur doubt.. if not then do let me know..

1. Share Warrant

Share warrant is a document issued by a company certifying that the bearer is entitled to the shares specified in it. A public company limited by shares may issue under its common seal a warrant stating that the bearer of the warrant is entitled to the shares therein specified, if it is so authorised by its articles; however, the issue requires the previous approval of the Central Government.

A private company including a private company, which is a subsidiary of a public company cannot issue share warrants. Share warrants do not constitute as qualification shares under section 270(4) and articles of the company cannot override that provision.

Warrants can be issued only in respect of fully paid-up shares. Coupons are provided for the payment of the future dividends on the shares specified in the warrant. A share warrant entitles the bearer thereof to the shares therein specified, and the shares may be transferred by delivery of the warrant.

2. Issue and effect of share warrants to bearer
The Board may in its discretion, with respect to any share which is fully paid-up, on application in writing signed by the person registered as holder of the share, and authenticated by such evidence (if any) as the Board may, from time to time, require as to the identity of the person signing the application, and on receiving the certificate, if any of the share, and the amount of the stamp duty on the warrant and such fee as the Board may from time to time require, issue a share warrant. [Regulation 40]

When share warrants are issued, the company must strike out the name of the shareholder from its register of members. The holder of a share warrant remains a shareholder but whether they are a member of the company depends on the articles of the company. [Section 115] A company which converts all its shares to share warrants should be careful: it could become a member less company and therefore cease to exist.

The name of the bearer will not appear on the register of members until he surrenders the warrant to the company in return for transfer of the shares, but he may be regarded as a member of the company under the provisions of the articles of association. The company is contractually bound to recognize the bearer as shareholder.

Adarsh