Investors frequently become confused by two key concepts when it comes to owning shares in a company: “transfer of shares” and “transmission of shares“. A shift in share ownership occurs in both systems, but there are important differences in the reasoning, steps, and legal ramifications. To prevent needless conflicts and guarantee flawless ownership transfers, stakeholders, heirs, and investors must be aware of these distinctions.
A consensual act, a transfer of shares occurs when a shareholder voluntarily gives ownership to another individual, frequently in exchange for payment. The transmission of shares, on the other hand, is an involuntary act that happens when a shareholder dies, becomes insolvent, or becomes insane. The Companies Act of 2013 governs both procedures, and there are particular documentation and compliance needs.
This blog breaks down the difference between transfer and transmission of shares in detail, helping shareholders, legal heirs, and businesses understand their rights and obligations clearly.
- Meaning of Transfer and Transmission of Shares
- Transfer of Shares:
This is a voluntary action by a shareholder, where ownership of shares is shifted from one person to another, usually through a sale or gift. It requires the execution of a proper transfer deed, payment of stamp duty, and company approval. - Transmission of Shares:
Transmission happens automatically by operation of law when a shareholder passes away, is declared insolvent, or becomes mentally incapable. In such cases, the shares are transmitted to the legal heirs or representatives without any transfer deed or stamp duty.
- Key Differences Between Transfer and Transmission
Here are the major distinctions between the two processes:
- Nature of Action
- Transfer: A deliberate and voluntary act of the shareholder.
- Transmission: An involuntary act triggered by legal or natural circumstances.
- Consideration
- Transfer: Usually involves payment or consideration.
- Transmission: No consideration is involved; it happens by law.
- Instrument Used
- Transfer: Requires a valid transfer deed, signed by both transferor and transferee.
- Transmission: No transfer deed is needed; a legal document such as a succession certificate or probate is sufficient.
- Stamp Duty
- Transfer: Stamp duty must be paid based on the value of shares.
- Transmission: No stamp duty is payable.
- Approval
- Transfer: Subject to approval by the Board of Directors of the company.
- Transmission: Generally recognised as a legal right and not subject to board refusal.
- Legal Basis
- Transfer: Governed by a contractual agreement between the transferor and the transferee.
- Transmission: Governed by statutory provisions of law.
- Process of Transfer of Shares
- Execution of a share transfer deed (Form SH-4).
- Payment of the requisite stamp duty.
- Submission of the share certificate along with the transfer deed to the company.
- Verification by the company and approval by the Board of Directors.
- Entry of the transferee’s name in the Register of Members.
Important Note: In private limited companies, restrictions may apply to the transfer of shares as per the Articles of Association.
- Process of Transmission of Shares
- Submission of a request letter to the company by the legal heir or representative.
- Submission of supporting documents, such as:
- Death certificate (in case of shareholder’s death)
- Succession certificate or probate of will
- Court order (if applicable)
- Verification by the company and approval by the Board.
- Issue of new share certificates in the name of the legal heir or representative.
- Practical Examples
- Transfer Example: Mr A sells 500 shares of XYZ Ltd to Mr B. This is a transfer, as it involves a voluntary act and consideration.
- Transmission Example: Mr X, holding 200 shares in ABC Ltd, passes away. His son inherits the shares after presenting legal documents. This is a transmission.
- Why Understanding the Difference Matters
- Helps investors plan ownership transfers smoothly.
- Prevents legal complications in case of sudden death or insolvency.
- Ensures compliance with the Companies Act and avoids penalties.
- Provides clarity for family members, heirs, and business partners.
Conclusion
The difference between the transfer and transmission of shares is crucial for every shareholder, investor, and business owner to understand. While a transfer reflects a conscious decision by a shareholder to sell or gift shares, a transmission arises by law due to unavoidable circumstances like death or insolvency. Each process has its own requirements, documentation, and implications.
Whether you are planning to transfer shares voluntarily or dealing with the sudden need for transmission, having proper knowledge helps avoid delays and disputes. For investors and heirs, this clarity ensures smoother transitions and rightful ownership.
If you need professional assistance with the transfer and transmission of shares, you can always rely on Shares Recover.