Transfer vs. Transmission of Shares: Understanding the Differences

The movement of an asset, whether physical or in ownership, is termed as a transfer. In the context of securities, this movement can be either voluntary or operational by law. The transfer of shares is a voluntary act by the shareholder, taking place by way of contract, while the transmission of shares occurs due to the operation of law, such as on the death or insolvency of the shareholder.

Meaning of Transfer of Shares

Transfer of shares refers to the intentional act of transferring the ownership of shares from one person, known as the transferor, to another, called the transferee. This transfer is a voluntary process and is usually executed through a sale, gift, or other contractual agreement. In public companies, shares are generally freely transferable unless the company’s articles of association impose specific restrictions. In contrast, private limited companies typically have more stringent rules regarding share transfers, often requiring board approval or offering existing shareholders the right of first refusal. The formal process involves the execution of a transfer deed.

Meaning of Transmission of Shares

Transmission of shares occurs automatically by operation of law, typically in situations such as the death, insolvency, or mental incapacity of a shareholder, or when a company holding shares is wound up. Unlike the transfer of shares, transmission does not involve a transfer deed. Instead, the legal representative or nominee of the original shareholder must provide proof of entitlement, such as a death certificate and a legal heir certificate, to claim the shares.

Provisions Under Companies Act, 2013 and Companies (Share Capital & Debenture) Rules, 2014

Transfer of Shares

Under Section 56 of the Companies Act, 2013, read with Rule 11 of the Companies (Share Capital & Debenture) Rules, 2014, the process for the transfer of shares must be carried out using a proper instrument of transfer, Form SH-4. This document needs to be stamped, dated, and signed by or on behalf of both the transferor and the transferee. The completed instrument, along with the share certificates or allotment letter, must be submitted to the company within 60 days of execution.

For partly paid shares, the company is required to notify the transferee using Form SH-5, and the transferee must confirm acceptance within two weeks.

Transmission of Shares

The process of transmission is initiated upon the receipt of a valid application along with the necessary documents, which include:

• A certified copy of the death certificate
• A self-attested copy of the PAN card
• A succession certificate, probate of will, or a court decree
• A specimen signature of the successor

Unlike transfer, no transfer deed is required for transmission.

Time Limit for Delivery of Share Certificates

Companies are required to deliver the certificates of transferred or transmitted securities within one month from the date of receipt of the transfer instrument or intimation of transmission, provided there are no legal prohibitions or court orders preventing such action.

Penalty for Non-Compliance

Failure to adhere to the specified time frame for the delivery of share certificates can result in penalties. Companies can be fined between ₹25,000 and ₹5,00,000, while officers in default may face fines ranging from ₹10,000 to ₹1,00,000.

Difference Between Transfer and Transmission of Shares

Frequently Asked Questions

1. Is stamp duty applicable on the transfer and transmission of shares?
Stamp duty is applicable on the transfer of shares based on the market value of the shares being transferred. Transmission of shares typically does not attract stamp duty but may vary based on jurisdiction.

2. How long does it take to transfer shares?
The process generally takes between 7 to 30 days, depending on the company’s internal processes and regulatory compliance.

3. Can minor shareholders transfer or transmit shares?
Minor shareholders cannot transfer shares directly. For transmission, the legal guardian must complete the process on behalf of the minor.

4. Do I need a demat account for the transfer or transmission of shares?
For listed companies, shares need to be in dematerialized form, requiring a demat account. For unlisted companies, physical share certificates may still be used, although demat is preferred.

5. Are there any fees associated with the transfer or transmission of shares?
Yes, there might be processing fees, stamp duty, and other charges levied by the company or depository participant.

6. Can shares be transferred or transmitted internationally?
Yes, shares can be transferred or transmitted internationally, but the process may involve additional compliance with foreign exchange regulations and other legal requirements.

Conclusion

Navigating the transfer and transmission of shares can be complex, requiring a thorough understanding of legal requirements and procedural steps. Ensuring compliance with regulatory norms and preparing accurate documentation are crucial for a smooth and successful transaction. Proper management of share transfers and transmissions not only maintains the integrity of share ownership but also protects the interests of shareholders and the company. InstaFiling can assist with the procedural requirements and documentation for both the transfer and transmission of shares, ensuring compliance with legal provisions and streamlining the process for investors and companies. Our experts provide guidance and support to navigate the complexities of share ownership changes, protecting your investments and interests.