What is a share certificate in the UK?
A share certificate serves as a legal document confirming an individual’s shareholdings in a company. Essentially, it acts as a dated receipt that verifies the person named is the registered owner of a specific quantity and class of shares within a particular company.
In this post, we’ll delve into the significance of share certificates for UK companies limited by shares. We’ll outline when and how to create these documents, what information they must include, and the process for issuing replacements. Let’s get started!
Issuing share certificates in a UK private limited company
The Companies Act 2006 (Section 768) defines a share certificate as “prima facie evidence” of a person’s ownership of the specified shares. This means it is accepted as correct unless proven otherwise. For companies registered in Scotland, a share certificate is considered “sufficient evidence, unless the contrary is shown,” of a shareholder’s title to the shares.
When a company allots new shares or approves the transfer of existing shares, it must issue a share certificate to the relevant shareholder (member). According to Section 769 of the Companies Act, this certificate must be delivered within two months of the date of allotment or transfer.
Share certificates remain a vital part of recording company ownership, complementing the register of members and digital cap tables. They play a significant role in safeguarding shareholders’ interests and rights, streamlining ownership transfers, and helping companies maintain an accurate record of genuine shareholders. Additionally, shareholders can sometimes use share certificates as collateral when seeking loans or financing.
Information to include on a share certificate
Many companies opt to create branded share certificates that feature their logo and company seal. However, using a template from a legal stationer or company formation agent is often the simplest and most practical option, especially for startups and small businesses.
Regardless of the design, every share certificate issued by your company should include the following details:
- Company Name and Company Registration Number
- Registered Office Address
- Unique Certificate Number
- Date of Issue
- Class of Shares Issued or Transferred
- Number of Shares Issued or Transferred
- Nominal Value of Each Share
- Shareholder’s Name and Address
In addition, the certificate must be signed by two directors or by one director and the company secretary. If your company has only one director and no company secretary, a witness must be present to provide a second signature.
At Startxpress, we offer a standard share certificate template tailored for private companies limited by shares with ‘Ordinary’ shares. You can use this template directly for your company or as inspiration to create your own design.
Click here to download your free copy!
It’s essential to keep a record of every share certificate issued, including any that are canceled, damaged, or defaced. However, there’s no requirement to submit copies to Companies House or HMRC.
Should you issue share certificates on paper or electronically?
Traditionally, companies have provided shareholders with paper certificates while maintaining hard copies for their internal records. However, the shift toward electronic share certificates is becoming increasingly popular.
The UK’s Digitisation Taskforce has proposed replacing paper share certificates with a more efficient digital system. While these proposals primarily target public companies, there is ongoing discussion about extending digitisation to private companies. Issuing and transferring electronically held shares offers several advantages, including faster processing, lower costs, and the elimination of risks associated with lost or damaged certificates. This shift also reduces the administrative burden and expenses linked to replacing physical certificates.
For now, UK companies can choose their preferred format – paper or digital. If you opt to issue paper certificates, retaining PDF backups as a precaution is highly recommended.
Do you have to issue separate certificates for each share?
According to the Model Articles of Association (Part 3, Article 24.1), a company is required to issue each shareholder, free of charge, with one or more certificates for the shares they hold.
This allows companies flexibility in how they issue certificates. You may provide a single certificate per shareholder covering all shares of the same class issued or transferred to them on a specific date. Alternatively, you could issue individual certificates for each share, even if all shares belong to the same shareholder. However, it is standard practice to issue a single certificate per shareholder for an allotment or transfer of shares within the same class. Companies generally only issue split certificates at the shareholder’s request or when required by the articles.
For shares of different classes, it is mandatory to issue separate certificates for each class during allotment or transfer.
Updating the register of members and PSC register
After issuing or transferring shares, a company must promptly update its register of members and, if applicable, its register of people with significant control (PSC register). Typically, these statutory registers are maintained at the company’s registered office address.
Updates Required for the Register of Members
For the Issue of New Shares:
The company must record the following details:
- The name and address of every new shareholder.
- The date(s) of share allotment.
- The class and quantity of shares held.
- The amount paid or agreed to be paid for each share.
For the Transfer of Shares:
The company must update the following information:
- The name and address of each new shareholder.
- The date(s) of share transfer.
- The date(s) on which any person ceased to be a member after transferring their shares.
- The updated shareholdings of all members who acquired or transferred shares.
Updates to the PSC Register
The PSC register only requires updates if a share allotment or transfer results in a change to the company’s significant control information. If no changes occur, the PSC register remains unaffected.
How long do share certificates remain valid?
Share certificates do not expire. Once issued, a certificate remains valid indefinitely unless the shareholder sells or transfers their shares. When this occurs, the company must cancel the existing certificate and issue a new one in the name of the new shareholder.
Issuing a replacement share certificate
When a share certificate is lost, stolen, damaged, or destroyed, the shareholder remains the rightful owner of the shares, as their ownership is recorded in the register of members. This ensures their rights to the shares are protected.
However, the shareholder must notify the company promptly and request a replacement certificate. The company should verify the legitimacy of the request, cancel the original certificate to prevent fraudulent use, and issue a new certificate with a unique number different from the original.
Before issuing a replacement, the company may require the shareholder to meet certain conditions, such as:
- Providing a signed statement detailing the circumstances of the loss or damage.
- Supplying a letter of indemnity to protect the company against any liability or misuse of the original certificate.
- Paying a reasonable fee to cover the costs of replacement.
If a certificate is damaged, defaced, or later found after being reported lost, the shareholder must return it to the company. The company should then mark it as canceled and retain it to prevent misuse or confusion.
When issuing a replacement certificate, it’s best practice to document the details of the event in meeting minutes. Additionally, the company should update any list of valid share certificates by marking the original as canceled.
FAQs about Share Certificates in the UK
What is the purpose of a share certificate?
A share certificate serves as proof of ownership, confirming that an individual holds a specific number and class of shares in a company. It acts as a legal document verifying the shareholder’s rights and interests in the company.
When does a company issue a share certificate?
A company must issue a share certificate when new shares are allotted or existing shares are transferred. The certificate must be delivered to the shareholder within two months of the allotment or transfer.
What information must be included on a share certificate?
A share certificate should include:
- Company name and registration number.
- Registered office address.
- Unique certificate number.
- Date of issue.
- Class and number of shares issued or transferred.
- Nominal value of each share.
- Shareholder’s name and address.
- Signatures of two directors or one director and the company secretary.
Do companies issue paper or electronic share certificates?
Companies can choose to issue either paper or electronic share certificates. Paper certificates are traditional, but electronic certificates are becoming more common due to benefits like faster processing and reduced administrative costs.
Do I need to issue a separate certificate for each share?
No, companies typically issue one certificate per shareholder for shares of the same class. However, separate certificates must be issued for shares of different classes.
How long do share certificates remain valid?
Share certificates remain valid indefinitely, unless the shares are sold or transferred. In such cases, the company will cancel the original certificate and issue a new one to the new shareholder.
What happens if a share certificate is lost or damaged?
If a share certificate is lost, stolen, or damaged, the shareholder should notify the company and request a replacement. The company will cancel the original certificate and issue a new one with a unique number.
How does a company update its register of members after issuing share certificates?
The company must update the register of members with details of new shareholders, the date of share allotment or transfer, and the number and class of shares held. If necessary, the register of people with significant control (PSC) should also be updated.
How does a company issue a replacement share certificate?
A company may issue a replacement share certificate if the original is lost or damaged. The shareholder will need to provide a signed statement, indemnity letter, and pay a reasonable fee. The company will then cancel the original certificate and issue a new one.
What if the original certificate is found after being reported lost?
If the original certificate is found, the shareholder must return it to the company, which will mark it as canceled and retain it to prevent misuse.
Do you have any other questions?
In this article, we covered the key points about share certificates in UK private limited companies. We explained their importance in confirming ownership, the details they must include, and the process for issuing replacements. Additionally, we discussed when to issue certificates for different classes of shares and the shift toward digital certificates. We also highlighted the need to update the register of members and the PSC register after share transactions. Following these steps will help ensure your company’s ownership records are accurate and legally compliant.
For more information, visit the Startxpress Help Center and the Startxpress Blog. If you have any questions, feel free to reach out to us at support@startxpress.io!
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