Transmission of Shares – A Complete Guide
Understanding the Transmission of Shares is vital for anyone involved in the transfer of ownership after a shareholder’s death or insolvency. It is a legal procedure governed by corporate and inheritance laws. This blog post from Share Claimers aims to simplify the transmission of shares, its legal implications, the step-by-step procedure, and essential documentation.
Let’s dive in to understand the concept and its real-world application.
What is Transmission of Shares?
The transmission of shares refers to the process of transferring ownership of shares from a deceased or incapacitated shareholder to their legal heir, nominee, or legal representative. Unlike transfer of shares, which is a voluntary act, transmission occurs by operation of law.
It is important to differentiate between transfer and transmission of shares:
- Transfer is voluntary, often done for consideration (sale).
- Transmission is involuntary, usually due to death, insolvency, or lunacy.
When Does Transmission of Shares Occur?
There are several scenarios where transmission of shares may be necessary:
- Death of a shareholder
- Insolvency or bankruptcy of a shareholder
- Mental incapacity or lunacy of a shareholder
In these cases, the shares are passed on to the legal heir or representative without any sale or purchase transaction.
Legal Framework for Transmission of Shares
The Companies Act, 2013 and company-specific Articles of Association (AoA) govern the process of transmission. According to Section 56 of the Act:
“A company shall register the transmission of shares if a legal representative or nominee makes a valid application.”
Furthermore, the Income Tax Act and Succession Laws may also apply depending on the mode of inheritance.
Key Features of Transmission of Shares
- No Stamp Duty: Since the transmission is not a transaction but a legal obligation, no stamp duty is applicable.
- Involuntary in Nature: It takes place without any action from the shareholder.
- Board Approval Required: The company’s board must approve the request based on submitted documents.
- Nominee vs. Legal Heir: If a nominee is mentioned, shares go to them. If not, shares are passed according to succession laws.
Difference Between Transfer and Transmission of Shares
| Basis | Transfer of Shares | Transmission of Shares |
|---|---|---|
| Nature | Voluntary | Involuntary |
| Reason | Sale, Gift, Exchange | Death, Insolvency, Incapacity |
| Stamp Duty | Required | Not Required |
| Approval | Usually needs Board Approval | Always needs Board Approval |
| Documentation | Share Transfer Form | Legal Proofs (Will, Death Cert.) |
This distinction is important for ensuring compliance with regulatory standards and proper shareholding structure.
Step-by-Step Procedure for Transmission of Shares
To carry out a Transmission of Shares, follow these steps:
1. Intimation to Company
The legal heir or nominee must notify the company about the shareholder’s demise or insolvency.
2. Submission of Documents
Key documents to be submitted include:
- Death Certificate (in case of death)
- Probate of Will or Succession Certificate
- Affidavit and Indemnity Bond
- PAN card of the legal heir/nominee
- Client Master List (if shares are in demat form)
3. Verification by the Company
The company verifies all submitted documents and checks if a nominee is registered.
4. Board Meeting and Approval
The Board of Directors discusses and passes a resolution for transmission.
5. Share Transfer Execution
Shares are transmitted in the name of the legal heir or nominee, and relevant changes are made in the register of members.
Documents Required for Transmission of Shares
The list of essential documents varies based on the mode of holding:
For Physical Shares
- Original share certificates
- Death certificate
- Succession certificate or probate
- Indemnity bond
- No objection certificate (if applicable)
For Demat Shares
- Death certificate
- Client Master Report
- Transmission Request Form (TRF)
- PAN card and KYC details
Transmission of Shares in Case of Nomination
If the shareholder has nominated someone, the process becomes straightforward. The nominee needs to provide:
- Death certificate
- Valid identity proof
- Duly filled transmission request form
The company or depository participant will then register the shares in the nominee’s name after approval.
Transmission without a Nominee – Legal Heir Route
In cases where no nominee is mentioned:
- The legal heirs must provide a succession certificate or probate of will.
- Multiple legal heirs may need to jointly sign the transmission request.
- Disputes may delay the process, requiring legal intervention.
Transmission of Shares Held in Joint Names
If the shares are held jointly and one of the joint holders dies, the surviving holder becomes the sole owner. Only a copy of the death certificate is usually required.
Time Frame for Transmission of Shares
As per the Companies Act, the transmission should be completed within 30 days from the date of submission of complete documents.
Delay beyond this period may result in legal consequences for the company and can be contested by the legal heir.
Important Considerations
- Always ensure your nominee details are updated with the company or depository participant.
- For dematerialized shares, intimate your DP (Depository Participant) instead of the company.
- Transmission does not involve consideration, hence no capital gains or tax implications arise immediately.
Conclusion
The Transmission of Shares is a crucial legal process ensuring rightful ownership after a shareholder’s demise or incapacitation. Though it might seem complex, understanding its steps, documentation, and legal framework simplifies the journey for legal heirs or nominees.
Whether you’re an investor, legal heir, or company secretary, knowing how the transmission of shares works helps you stay compliant and avoid disputes.
At Share Claimers, we specialize in assisting with legal and procedural aspects of share transmission. Our team ensures that your documents are filed correctly, approvals are obtained smoothly, and the entire process is hassle-free.
