Transmission of Shares

INTRODUCTION

The imperative characteristic of a company is that its shares are transferable. Shares or debentures are movable property and are transferable in the manner provided by the articles of the company,

The transfer of shares is possible through any contract or arrangement between two or more persons. The Companies Act 2013 provides provisions that deal with the transfer and transmission of securities. The act of movement of an asset is termed a transfer. The movement can be either physical or change in the ownership of the title or both. For securities/shares or debentures, this movement can be voluntary or operational by law.  Transfer of shares means the voluntary handing over of the rights, on the other hand, the transmission of securities means loss of title on these securities due to death, succession, inheritance, bankruptcy, etc. In short, it takes place due to the operation of law.

Transfer of shares is an intentional transfer of the title of the shares between the transferor and the transferee. The shares of a public company are freely transferable unless there is a contract to the contrary. The shares of a private limited company are not freely transferable; they are subject to certain exceptions. For the purpose of transfer of share, a transfer deed is executed. Transmission of shares takes place due to the operation of law that is otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, etc. In such cases, no transfer deed is executed, and the transferee will be given the rights to the shares upon the proof of entitlement to the shares.

TRANSMISSION OF SHARES

Transmission means devolution of the title of shares due to the operation of law either by death, succession, inheritance, bankruptcy, marriage, etc. For instance, in case of the death of the holder of shares, it will be transferred to the legal representative of the deceased, and while in case of insolvency it is transferred to the official assignee. The legal provisions governing the transmission of shares are elaborated in section 56 of the Companies Act, 2013. Articles of Association of the company consist of a set of rules and regulations for the transfer and transmission of shares. The transmission of shares will be affected when the application of transmission of shares along with necessary documents is valid and approved. Execution of the transfer deed is not required. The following are the relevant documents required for the transmission of shares:

a. Certified copy of death certificate;

b. Self-Attested copy of PAN;

c. Succession certificate; (Required only in case “Will” is not available).

d. Probate; (certified copy of the will is called ‘probate’. Succession certificate is not required in case when probate or letter of administration is issued.)

e. Specimen signature of the successor.

DIFFERENCE BETWEEN TRANSFER OF SHARE AND TRANSMISSION OF SHARE

MAIN PROVISIONS RELATING TO TRANSMISSION OF SHARES

Section 56 describes the procedures for the transmission of shares and they are the following:

Step 1: Application for transmission by eligible persons.

The survivor or the legal heir is required to apply for transmission of shares by providing the death certificate of the deceased shareholder. The survivors of joint holding who desire to get the transmission process done by operation of law simply need to apply with the company by submitting relevant documents. In such cases, the survivor or survivors shall only be entitled to registration and the legal heir of the deceased member shall have no right.

Step 2: Review and Verification of documents

Once the survivor submits relevant documents, the next step is verification of documents by the company. The company will review and verify the documents like death certificate, succession Certificate, probate, etc. If the company is satisfied, it may approve the transmission of share request, otherwise, it may refuse the transmission request and intimate within 30 days about such refusal.

Step 3: Transfer deed not required in transmission of shares.

Execution of transfer deed is not mandatory in case of transmission of shares. Intimation of transmission accompanied with required documents would be enough for a valid request for transmission. Valid documents are enough for the transmission process.

Step 4: Liability on shares

On the transmission of shares, the liability of shares continues to be subject to the original liabilities, and if there was any lien on the shares for any sums due, the lien would continue, notwithstanding the devaluation of the shares.

Step 5:  Stamp duty not required

As the process of the transmission of shares is due to the operation of law, payment of consideration or payment of stamp duty is not required on the instrument of transmission.

Step 6: Issue of share certificates after transmission (Sec 56(4))

Every company shall deliver the certificates of all shares transmitted after the application for the registration of the transmission of any such shares received within 1 month unless it is prohibited by any provision of law or of any order of any Court, Tribunal, or other authority. As per section 56 (4) of companies act 2013, every company shall, unless prohibited by any provision of law or any order of Court, Tribunal, or other authority, deliver the certificates of all securities transmitted within one month from the date of intimation of transmission under sub-section (2) in case of transmission of securities.

Step 7: Time Limit for Refusal of registration of Transmission

Section 58 of the Companies Act, 2013 provides provisions related to refusal of registration and appeal against refusal. Power of refusal to register transmission of shares is to be exercised by the company within thirty days from the date on which the intimation of transmission is delivered to the company. Section 58(4) provides that the person who gave intimation of the transmission by operation of law may, within sixty days of such refusal or where no intimation has been received from the company, within ninety days of the delivery of the intimation of transmission, appeal to the Tribunal against such refusal.

Step 8: Penalty in case of Non-compliance

If the company is making any default in complying with the provisions related to transmission of shares, the company shall be punishable with fine which shall not be less than Rs. 25,000 but which may extend to Rs. 5, 00,000 and every officer of the company who is intentionally defaulting shall be punishable with fine which shall not be less than Rs. 10,000 but which may extend to Rs. 1, 00,000.

DOCUMENT REQUIRED FOR THE TRANSMISSION OF SHARES

1. When shares are held in the Demat account

If the shares are in the Demat account then the survivor or the legal heir need to submit the following documents-

1.         Transmission Request Form (TRF)

2.         Affidavit on 100/- stamp paper for claiming the legal heir of the beneficial owner

3.         Notarized copy of the death certificate

4.         Indemnity deed on 500/- indemnifying both, the depository and Depository Participants (DP)

5.         NOC From legal heirs

6.         Family settlement deed duly executed by all legal heirs of the deceased owner

The Depository Participants (DP) may insist the survivor to submit more documents apart from the above in case if the value is more than Rs 2 lacs

1.         Succession certificate

2.         Probated will

3.         Surety Form

2. When shares are in Physical Form

In case if shares are in physical form the following documents are required in the procedure for transmission of shares-

1.         Transmission Request Form (TRF)

2.         Notarized copy of the death certificate

3.         Original Share Certificates

4.         Succession certificate

5.         Probate or letter preferably notarized

The shares of the deceased shareholder are automatically transmitted to their legal heirs. Legal heirs are responsible to submit required documents of transmission and get the part completed.

Meaning of Probate: 

If a member of a company dies and he leaves after him a will or letter of administration then it is the responsibility of the survivors to get a copy of ‘will’ certified under the seal of a Court of competent jurisdiction. The certified copy of the will is called a ‘probate.’ Succession certificate is not required when probate or letter of administration is issued.

If a member of a company dies without leaving a will, then a succession certificate is required and the succession certificate issued by a Court of competent jurisdiction shall be submitted to the company for the process of share transmission. Once succession certificate is granted, it provides full indemnity to the company regarding transmission of shares by operation of law.

In case of joint holding, the survivors can get the shares transmitted in their names by production of the required document i.e., death certificate of the deceased holder of shares.

CONCLUSION

Transmission of share means transfer of title to the shares due to the operation of law. This situation arises because of unpredictable reasons such as death of a shareholder, inheritance, bankruptcy, marriage and succession. On death of the shareholder, legal heirs are required to submit a request letter supported by relevant documents to transfer the shares or securities. Transfer of shares means the voluntary handing over of the rights, on the other hand, the transmission of securities means loss of title on these securities due to death, succession, inheritance, bankruptcy, etc. In short, it takes place due to the operation of law.

On transmission of shares, the person to whom shares are transmitted becomes the new registered shareholder of the company and is entitled to all the rights and subject to all liabilities as such shareholder. Execution of transfer deed is not mandatory in case of transmission of shares. Transmission will be registered by a company in the registrar of members. Section 56 of Companies act 2013 provides the provisions related to transmission of shares.