Many individuals hold shares in companies, either as physical certificates or within an electronic demat account. But what happens to these assets when the owner is no longer able to manage them? The legal procedure for transferring these investments to the rightful recipients is known as transmission of shares. This is not a voluntary sale, but an automatic process triggered by law. Understanding how it works from the outset can prevent future stress and legal complications, ensuring a smooth transition of ownership. This guide will walk you through everything you need to know about transmitting shares in a simple, straightforward manner.
What is Share Transmission?
Share transmission is the legal procedure through which ownership of shares passes automatically to legal heirs or nominees following specific events, such as the death or insolvency of the original shareholder. Governed by the Companies Act, 2013, this process is not a voluntary act but is triggered by law. It is crucial to distinguish share transmission from the voluntary transfer of shares, as they follow different rules and requirements.
The key distinctions between the two processes are outlined below:
Nature of the Action:
Transmission: An involuntary action that occurs by operation of law.
Transfer: A voluntary and deliberate act between parties.
Triggering Event:
Transmission: Caused by events like the death, bankruptcy, or mental incapacity of a shareholder.
Transfer: Initiated by a sale or a gift of the shares.
Primary Documentation:
Transmission: Requires proof of entitlement, such as a Death Certificate or Succession Certificate.
Transfer: Requires a duly stamped and executed instrument of transfer (like Form SH-4).
Stamp Duty:
Transmission: Stamp duty is not payable.
Transfer: Stamp duty is payable as per state laws.
Financial Consideration:
Transmission: No payment is involved in the transaction.
Transfer: A payment (price) is typically made for the shares.
Who Can Apply for the Transmission of Shares?
Before starting the transmission process, it’s important to know who can actually make the claim. This avoids confusion and ensures the shares reach the rightful owners. The right to apply for transmission of shares depends on the specific situation:
Nominees:
If the deceased shareholder had nominated someone, that person is the primary claimant. The nomination simplifies the process significantly.
Surviving Joint Holders:
If the shares were held jointly with another person, the surviving holder(s) become the automatic owners of the shares. They simply need to inform the company or Depository Participant (DP) to remove the deceased’s name.
Legal Heirs:
If the shares were held solely and no nominee was appointed, the legal heirs (as determined by the Indian Succession Act, 1925) or the legal representative (executor of a Will) must apply.
Documents Required for Transmission of Shares
The documents required can vary based on the value of the shares and whether a nominee was appointed. Here is a general checklist:
For Transmission with a Nominee:
- Duly signed transmission request form
- Original death certificate (or a certified copy)
- Self-attested copy of the nominee’s PAN card
- The original share certificates (for physical shares)
For Transmission without a Nominee (to Legal Heirs):
- Duly signed transmission request form
- Original death certificate
- Proof of entitlement. The required document depends on the value and situation :
- For shares valued up to ₹5 lakhs: A Legal Heir Certificate and a No Objection Certificate (NOC) from all other legal heirs may be sufficient.
- For shares valued above ₹5 lakhs: A Succession Certificate (if there is no Will) or a Probate of Will (if there is a Will) is typically required.
- Affidavit and Indemnity Bond
- Identity and address proof of the legal heir(s)
Step-by-Step Process for Transmission of Shares
Handling the transmission of shares can feel overwhelming, especially with legal documents and formalities involved. Breaking it down into simple steps makes the process easier to follow and reduces mistakes.
Step 1: Obtain the Death Certificate
The first and most crucial step is to obtain the original death certificate of the shareholder or a copy that has been attested by a notary public or gazetted officer. This document is the primary proof required to initiate the process.
Step 2: Identify the Legal Heirs or Nominee
Check if the deceased shareholder had appointed a nominee for the shares (for demat accounts) or had a surviving joint holder. If not, the legal heirs, as per the law of succession, will need to be identified.
Step 3: Notify the Company or Depository Participant (DP)
The next point of contact depends on how the shares were held:
For Demat Shares: Approach the Depository Participant (DP) where the demat account was held.
For Physical Shares: Contact the company’s Registrar and Transfer Agent (RTA) or the company directly.
Step 4: Submit the Required Documents
You will need to fill out a transmission request form provided by the DP or RTA and submit it along with the necessary supporting documents. We will detail the documents in the next section.
Step 5: Verification by the Company or DP
The company or DP will verify all the submitted documents to ensure they are authentic and in order. This step is their due diligence to prevent fraudulent transfers.
Step 6: Transfer of Shares and Update of Records
Once the verification is successful, the company or DP will update its records. For demat shares, the securities will be transferred to the demat account of the claimant. For physical shares, the company will issue new share certificates in the name of the new owner.
Step 7: Receipt of Shares
The process is complete when the claimant receives the shares in their demat account or the new physical share certificates. By law, the company must deliver the certificates within one month of receiving the transmission request.
Legal Requirements and Important Considerations
Legal rules and company policies play a big role in share transmission. Knowing them beforehand helps heirs, nominees, and companies complete the transfer smoothly and on time.
Transmission with vs. Without Nomination
Having a nominee makes the process much quicker and simpler, as it bypasses the need for complex legal documents like a Succession Certificate. It is a powerful reason to ensure all your demat accounts and physical shares have an updated nominee.
Special Case: Transmission of Jointly Held Shares
In a joint holding, the process is straightforward. Upon the death of one holder, the securities are automatically transmitted to the surviving holder(s) upon submission of the death certificate.
Timeframe and Penalties
The company is legally required to deliver the new share certificates or update the demat account within one month of receiving the intimation and valid documents. Failure to comply can result in heavy fines for the company and its officers.
Common Challenges and How to Avoid Them
The process of share transmission may not always go smoothly. Understanding the typical issues that arise allows you to take steps to prevent them and ensure a faster transfer.
Incomplete Documentation:
This is the most common hurdle. Double-check the list of required documents with your DP or RTA before submission.
Disputes Among Heirs:
Family disputes over inheritance can halt the process. Clear estate planning, including a Will, can help prevent such situations.
Lost Share Certificates:
If the original physical certificates are lost, the process becomes more complex, requiring you to obtain duplicate certificates first.
Non-KYC Compliant Accounts:
Ensure the demat account receiving the shares has updated KYC (Know Your Customer) details to avoid delays.
To ensure a smooth and hassle-free process, investors can seek assistance from Crystal Peak Wealth. With over 20 years of experience, we guide clients through every step, handling all paperwork via SEBI-registered third parties. We have an expert team that ensures claims are processed correctly, reducing delays and errors.
Conclusion
The transmission of shares is a vital legal process that ensures the smooth transition of a deceased person’s investments to their loved ones. While it can seem overwhelming, understanding the basic steps and requirements can make it manageable. By being proactive, appointing a nominee and keeping your financial records organised, you can safeguard your financial legacy and make this process significantly easier for your family.
If you find the process complex, especially with high-value estates or family disputes, do not hesitate to seek guidance from a financial or legal professional. For this, Crystal Peak Wealth can be your partner because taking the right steps today can provide immense peace of mind for you and your family tomorrow.