Transfer and Transmission of Shares

Transfer and Transmission of shares are two key processes that allow the change of ownership in a company. Though both terms involve the movement of shares from one person to another, they differ significantly in their nature, legal procedures, and circumstances.

Transfer of Shares

Transfer of Shares refers to the voluntary transfer of ownership by a shareholder to another individual or entity. The transfer usually occurs through a sale or gift and can be executed at the shareholder’s discretion, as long as it complies with the Companies Act, 2013 and the company’s Articles of Association.

Key Features of Transfer of Shares:

• Voluntary Act:

The transfer of shares is a voluntary act initiated by the shareholder (the transferor). It can be done for consideration (usually a sale) or as a gift.

• Applicable to Both Public and Private Companies:

In public companies, the transfer of shares is relatively free and unrestricted. However, in private companies, restrictions are often imposed by the company’s Articles of Association, which may limit or pre-approve the transfer.

• Execution through a Transfer Deed:

Transfer of shares must be done through a share transfer deed, which is a legal document detailing the transaction. This document is signed by both the transferor (the current shareholder) and the transferee (the buyer/new shareholder).

• Consideration:

In most cases, a transfer of shares involves consideration, which is typically the price agreed upon by the transferor and transferee. The value can be based on market rates, company valuation, or other factors.

• Registration of Transfer:

Once the share transfer deed is completed, it must be submitted to the company along with the original share certificates. The company will verify the documents and, if everything is in order, the board of directors will approve the transfer. The company will then register the transferee as the new shareholder in its register of members.

• Stamp Duty:

Share transfer is subject to stamp duty under the Indian Stamp Act, 1899. The rate of stamp duty depends on the consideration value mentioned in the transfer deed.

Process of Transfer of Shares:

1. Execution of Share Transfer Deed (Form SH-4):

The transferor and transferee must sign a duly stamped share transfer deed, commonly referred to as Form SH-4.

2. Submission to Company:

The signed deed, along with the original share certificates, must be submitted to the company within 60 days of the execution.

3. Verification:

The company verifies the documents, and if found valid, the board approves the transfer.

4. Recording in the Register of Members:

Upon approval, the company updates its register of members to reflect the new owner.

Transmission of Shares:

Transmission of Shares refers to the involuntary transfer of shares due to specific circumstances such as the death, bankruptcy, or insolvency of the shareholder. Unlike transfer, transmission does not require the execution of a share transfer deed, as it is a legal process resulting from the operation of law.

Key Features of Transmission of Shares:

• Involuntary Transfer:

The transmission occurs due to legal circumstances such as death, insolvency, or bankruptcy of a shareholder.

• No Consideration:

Transmission is not a sale or purchase; therefore, there is no consideration involved. The shares are passed on to the legal heir, executor, or official assignee by operation of law.

• Applicable Legal Heirs or Representatives:

In the case of the shareholder’s death, the shares are transmitted to the legal heirs or the person nominated by the deceased shareholder. In cases of insolvency, the transmission is to the official assignee.

• Simplified Procedure:

Since the transmission occurs by operation of law, there is no need for a transfer deed. However, certain legal documents (such as a succession certificate or probate of the will) may be required to initiate the transmission process.

• No Stamp Duty:

Transmission of shares is exempt from stamp duty as it does not involve a voluntary transfer or consideration.

• Registration of Transmission:

The company, upon receiving the necessary documents (such as death certificates, probate, or letters of administration), will approve the transmission and update its register of members accordingly.

Process of Transmission of Shares:

1. Intimation to Company:

The legal heir or representative of the deceased or insolvent shareholder must inform the company of the transmission.

2. Submission of Documents:

The company may require certain documents, including:

• Death certificate (in case of death),
• Probate or succession certificate (in case of death without a nominee),
• Official assignee order (in case of insolvency),
• Letter of administration (for intestate deaths).

3. Verification:

The company verifies the documents. In case the deceased had appointed a nominee, the process is simpler. Without a nominee, legal proceedings (such as obtaining probate) might be required.

4. Approval and Recording:

Upon verification, the board of directors approves the transmission. The new legal owner is then registered in the register of members, and the transmission is complete.

Key Differences between Transfer and Transmission of Shares: