A share warrant is a document in which it is stated that the bearer of the warrant is entitled to the shares specified therein. A definition may, thus, be given as follows:
A share warrant is a bearer “document of title” to the shares, issued by the company under its common seal, duly stamped and signed by one or more directors of the company, as per Articles’.
A share warrant is just like a negotiable instrument. The shares specified therein may be transferred by delivery of the warrant only, [Sec. 114(3)] and any bona fide holder for value will obtain a perfect title to the shares (Webb, Hale & Co, vs. Alexandria Water Co.). In other words, a share warrant represents a bearer share and a bearer share is just like a bearer cheque. Share warrants are not popular in practice because the risk of loss is great. Once it is lost there are very remote chances of recovering the ownership of shares.
Conditions of Issue :
Section 114 lays down the following provisions for the issue of share warrants:
(1) Only a public company limited by shares can issue share warrants.
(2) Share warrants cannot be issued originally. Only share certificates for fully paid shares can be converted into share warrants.
(3) The articles of association must authorize the issue of share warrants.
(4) Approval of Central Government must be obtained for issuing share warrants.
Preparation of the Warrant :
Whenever any holder of fully paid shares wants to convert the share certificate into a share warrant, he has to make a request on printed application form to the company along with the relevant share certificate. He has also to deposit the stamp duty and other prescribed fees and charges.
On receipt of the duly completed application form, the secretary’s office sends a Lodgement Ticket to the shareholder concerned acknowledging the receipt of the documents and slating therein that this ‘Ticket’ is to be exchanged for the share warrant later. The secretary now looks to it that all the relevant provisions of the Companies Act relating to the issue of share warrants are duly conformed to. On being satisfied, he issues instructions for the preparation of share warrant (s).
Share warrant forms are usually printed in three parts, one being separated from the other by perforation: (i) the Counterfoil, (ii) the Share Warrant proper, and (iii) the Dividend Coupons. A ‘talon’ for demanding a fresh set of dividend coupons, when those attached to the warrant have been exhausted, is also provided therein. These forms are completed by the secretary’s office, and a meeting of the Board of Directors is convened to pass a resolution for sealing and signing of the warrant(s). Accordingly, the share warrants are then sealed and signed and the applicants are advised by a circular letter to take delivery of the warrants from the registered office of the company in exchange for the ‘Lodgement Tickets’.
Effects of the Issue of Share Warrants :
The various effects of the issue of share warrants may be enumerated as follows:
(1) The company shall strike out of its Register of Members the name of the member then entered therein as holding the shares specified in the warrant, just as if he had ceased to be a member, and shall enter in that register the following particulars:
(a) the fact of the issue of the warrant;
(b) a statement of the shares specified in the warrant, distinguishing each share by its number; and
(c) the date of the issue of the warrant [Sec. 115(1)].
(2) By virtue of Section 115(5) the bearer of share-warrant may or may not be granted all the rights of membership. As such, if the Articles so provide, he may be deemed to be a member to the extent and for the purposes defined in the Articles. His rights of membership are usually curtailed e.g., he cannot present a petition for the winding up of the company. He may not be granted the right to attend general meetings, the right to vote etc.
(3) The share warrant will not constitute the qualification shares for the directors, where one is imposed by the Articles [Sec. 270(4)].
(4) The Annual Return must give particulars of share warrants.