Transmission of Physical Shares under Companies Act, 2013

 

Introduction

Transmission of shares is a crucial yet often overlooked concept in corporate law. It refers to the devolution of ownership of shares by operation of law, rather than by a voluntary act of the shareholder.

Unlike transfer of shares, which is executed through mutual agreement, transmission arises automatically in situations such as death, insolvency, or succession. Upon transmission, the person entitled becomes the registered shareholder, subject to compliance with company procedures.

This article focuses specifically on the transmission of shares held in physical form.

 

Legal Framework

Transmission of shares is governed by the following provisions:

· Sections 56, 58, and 88 of the Companies Act, 2013

· Rules 11 & 19 of Companies (Share Capital and Debentures) Rules, 2014

· Rule 5 of Companies (Management and Administration) Rules, 2014

· Table F of Schedule I

· Reference: Secretarial Standards (for guidance purposes)

 

Key Features of Transmission

· No transfer deed is required

· No stamp duty is payable

· No consideration is involved

· Occurs strictly by operation of law

 

Modes of Transmission of Physical Shares

1. Transmission in Case of Nominee

A nominee is a person designated by the shareholder to whom shares vest upon death. Importantly, a nominee need not be a legal heir.

Rights of Nominee:

· Can register as shareholder, or

· Transfer shares to any other person

Documents Required:

· Request letter

· KYC documents

· Death certificate

· Original share certificate

· Indemnity-cum-affidavit

Company Procedure:

· Verification of nominee details

· Board approval

· Entry in Register of Members (MGT-1)

· Endorsement and issuance of share certificate

 

2. Transmission in Case of Joint Shareholders

As per Table F of Schedule I:

· The surviving joint holder(s) become entitled to the shares

· Legal heirs of the deceased are not recognised

 

3. Transmission in Case of Sole Holder (No Nominee)

Where no nominee exists, shares are transmitted to the legal heir(s).

Key Documents:

· Death certificate

· KYC of legal heir(s)

· Original share certificate

· Legal proof such as:

o   Succession Certificate

o   Probate of Will

o   Letter of Administration

o   Legal Heir Certificate

· Indemnity bond and affidavit

· No Objection Certificate (in case of multiple heirs)

         
Special Relaxation:

· For securities up to ₹5 lakh (physical mode):

o   NOC from legal heirs

o   Indemnity bond may suffice (if legal documents unavailable)

 

Timelines and Compliance

· Company must process transmission within 30 days

· Entries in statutory registers to be made within 7 days of Board approval

 

Important Considerations

· Duplicate Share Certificates may be issued if originals are lost

· Legal heir/nominee is entitled to dividends and benefits

· Voting rights are available only after registration as a member

· Shares remain subject to existing liabilities or lien

 

Conclusion

Transmission of physical shares ensures the continuity of ownership in situations beyond the shareholder’s control. While the process is simpler than transfer due to the absence of stamp duty and transfer deed, it requires careful compliance with legal documentation and company procedures.

Understanding this distinction is essential for professionals dealing with shareholding, compliance, and corporate governance.

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