Share Warrant | Meaning | Conditions | Merits and Demerits

What is a Share Warrant?

A Share Warrant is a document issued by the company under its common seal, stating that its bearer is entitled to the shares or stock specified therein. Share warrants are negotiable instruments. They are transferable by mere delivery without registration of transfer.

Share Warrant - Meaning, Conditions, Merits, Demerits
Share Warrant – Meaning, Conditions, Merits, Demerits

Conditions for issuing share warrants

The following conditions should be satisfied for issuing share warrants.

1. Only a public company can issue share warrants.

2. It must be authorized by the Articles of Association.

3. The shares must be fully paid-up.

4. The approval of the Central Government is necessary.

On the issue of the share warrant, the company must strike off the name of the member in its Register of Members and must enter the following particulars:

1. The fact of the issue of the share warrant,

2. A statement of the shares included in the warrant, distinguishing each share by its number, and

3. The date of issue of the warrant.

It is a negotiable instrument and mere delivery transfers the ownership of the shares. Coupons are attached to each warrant, bearing the dates on which the dividend will be paid by the company as it cannot know who the shareholder or who is entitled to the dividends. The person who produces the appropriate coupon can receive payment of the dividend.

Merits of Share Warrant

1. The shares mentioned in it are transferable by mere delivery of the warrant. Registration is not necessary.

2. It is a negotiable instrument. So one who purchases the share warrant in good faith and without negligence gets a better title
than that of the transferor.

3. Banks accept share warrants as a security for loans.

4. The company may provide for future dividend payments by attaching dividend coupons with the share warrants.

Demerits of Share Warrant

Share warrants are not very popular in India. It is due to the following disadvantages:

1. The bearer of the warrant is not a member of the company.

2. Since it is bearer instrument, the holder always faces the risk of losing the document.

3. The company should be very careful while printing and keeping them in safe custody.

4. The stamp duty on share warrant is very heavy.

5. Prior approval of the Central Government is essential.

6. The number of shares mentioned in it does not constitute a share qualification for directorship.