In the world of corporate finance and company law, the concepts of transfer and transmission of shares are fundamental to understanding how ownership of shares changes hands. Whether you are a shareholder, a company executive, or a legal professional, it is essential to grasp the nuances of these processes.
Shares represent ownership in a company and are a critical component of corporate finance. For shareholders, understanding how shares can change hands is essential. Two primary mechanisms govern this process: the transfer of shares and the transmission of shares. While both involve the change of ownership, they differ significantly in their nature, process, and legal implications.
Read on to explore the concepts, and differences of share transfer and transmission.
What is the Transfer of Shares in a Company?
The transfer of shares is a fundamental process in the corporate world involving the intentional transfer of ownership of shares from one party to another. This process is crucial for shareholders who wish to sell, gift, or otherwise transfer their shares to another individual or entity. Specific legal and procedural frameworks govern the transfer of shares to ensure transparency and validity.
Key Aspects of Share Transfer:
Parties Involved:
Transferor: The individual or entity that currently owns and wishes to transfer the shares.
Transferee: The individual or entity receiving the shares from the transferor.
Transferability of Shares:
Public Companies:
In the case of public companies, shares are generally freely transferable. This means shareholders can sell or transfer their shares without significant restrictions unless the company has a valid reason to disallow the transfer. This free transferability is a key feature that makes public company shares liquid and attractive to investors.
Private Companies:
Shares of a private limited company, on the other hand, are not as freely transferable. The transfer of shares in a private company is often subject to certain restrictions. These restrictions are implemented to maintain control over who becomes a shareholder, ensuring that the company remains closely held.
What is the Transmission of Shares
Transmission of shares refers to the transfer of ownership of shares due to the operation of law rather than through a voluntary transaction. This process occurs in specific circumstances, such as the death, insolvency, or lunacy of the shareholder or when the shareholder is a company that has been wound up. Unlike the transfer of shares, which involves a deliberate act by the shareholder, transmission is triggered by legal events and does not require the execution of a transfer deed.
Distinguish Between Transfer And Transmission of Shares
The following table illustrates the differences between the transfer of shares and transmission of shares:
| Transfer of Shares | Transmission of Shares |
| Voluntary and intentional | Involuntary, triggered by death, insolvency, etc. |
| Requires a share transfer deed and Board approval | Requires legal documents like death certificate or probate |
| Involves an agreement between transferor and transferee | Involves transmission to heirs or legal representatives |
| Mandatory approval by the company’s Board | Not required, but documentation may need to be submitted |
| Share transfer deed, payment of stamp duty | Death certificate, legal heirship certificate, etc. |
| Subject to company’s Articles of Association (for private companies) | No restrictions, as it is based on legal succession |
Provisions Under the Companies Act, 2013 and the Companies (Share Capital & Debenture) Rules, 2014
The provisions related to the transfer and transmission of shares are outlined under Section 56 of the Companies Act, 2013, and further detailed in Rule 11 of the Companies (Share Capital & Debenture) Rules, 2014. These provisions lay down specific procedures, documentation requirements, and penalties for non-compliance, ensuring a company’s smooth transfer or transmission of securities. Below is an in-depth explanation of these provisions:
Transfer of Shares
The transfer of shares in a company is a legal process that must follow the guidelines specified under the Companies Act, 2013 and the Companies (Share Capital & Debenture) Rules, 2014. Key steps for the transfer process include:
Instrument of Transfer:
A proper instrument of transfer, as outlined in Form SH-4 (specified under Sub-rule 1 of Rule 11 of the Companies (Share Capital & Debenture) Rules, 2014), must be duly executed. The instrument should be:
– Stamped as per applicable stamp duties.
– Dated correctly.
– Executed by both the transferor and transferee or their authorised representatives.
– It must specify all necessary details, such as the name, address, and occupation (if any) of the transferee.
Submission to the Company:
The transfer form, along with the share certificate or letter of allotment of securities, must be submitted to the company within 60 days from the date of execution of the transfer deed. This submission can be made by either the transferor or the transferee.
Transfer of Partly Paid Shares:
If the transfer concerns partly paid shares, the transferor must apply for the transfer using Form SH-5 (as given in Sub-rule 3 of Rule 11). The company is required to notify the transferee about the application, and the transferee must give a No Objection to the transfer within 2 weeks of receiving the notice.
Transmission of Shares
Unlike the transfer of shares, the transmission of shares is a legal process that does not require the execution of a transfer deed. It is typically initiated upon the death, incapacity, or legal incapacity of the shareholder. The following documents are required for the transmission process:
Certified Copy of the Death Certificate (in case of death of the shareholder).
Self-attested Copy of PAN Card of the deceased or the successor.
Legal Documents such as:
– Succession Certificate
– Probate of Will
– Will
– Letter of Administration
– Court Decree
Specimen Signature of the successor.
These documents must be submitted along with the application for the transmission of shares to the company, which will process the request accordingly.
Time Limit for Delivery of Share Certificates
Under both the transfer and transmission processes, the company has a statutory obligation to issue the relevant share certificates to the parties involved. The time limit for delivering certificates is as follows:
For Transfer of Shares:
The company must issue the certificate within 1 month from the date of receipt of the transfer instrument.
For Transmission of Shares:
The company must also deliver the share certificates within 1 month from the receipt of the transmission request and supporting documents.
However, this time frame may be extended if prohibited by law or any court order, tribunal, or other relevant authority.
Penalties for Non-Compliance
Failure to comply with the prescribed regulations can result in significant penalties for the company and its officers. Specifically:
The company may face a fine ranging from a minimum of Rs. 25,000, which can extend up to Rs. 5,00,000.
Every officer of the company who is in default may be penalized with a fine ranging from a minimum of Rs. 10,000 to a maximum of Rs. 1,00,000.
Conclusion
The transfer and transmission of shares are two distinct but equally essential processes in company law. While transfer involves a voluntary change in ownership, transmission occurs automatically due to legal events. Understanding these concepts is crucial for shareholders, companies, and legal professionals.
By following the proper procedures and complying with legal requirements, companies can ensure smooth ownership transitions and maintain transparency in their operations. Whether transferring shares to a new owner or dealing with the transmission of shares due to unforeseen circumstances, it is always advisable to seek professional guidance to navigate the complexities of company law.
At Crystal Peak Wealth, we specialise in providing expert assistance with transferring and transmitting shares. Our team of professionals ensures that all legal and procedural requirements are met, making the process seamless and hassle-free for our clients. From drafting share transfer forms to handling transmission documentation, we are here to support you every step of the way.
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