Change in Business Company Share Transfer Compliances

Procedure for Transmission and Transfer of Shares as per Companies Act, 2013

Transmission of Shares” refers to a procedure wherein the legal ownership of the shares is transferred. As per the regulations, a legal representative is entitled to all the shares the deceased person holds. Hence the company must accept the evidence of Succession for the same.

What is evidence of succession?

• Succession Certificate
• Letter of Administration
• Probate
• Evidence acquired by the Board of Directors

Steps involved in the transmission process of shares in India

The term “transmission” refers to the devolution of title to Shares other than through transfer. When Shares are transferred, the person to whom the Shares are transferred becomes a registered shareholder of the firm, with all rights and liabilities associated with the Shares. If the deceased held Shares in more than one firm, the legal heir(s) or nominee must interact with each of the companies by presenting the required paperwork and share certificates to effect Share transmission. In the case of dematerialised holdings, the formalities for the transmission of all securities can be performed by submitting the Depository Participant’s relevant documentation.

The company should effect transmission of Shares upon receipt of notification of a Member’s death and production of the following documents:

1. Death certificate;
2. Request for transmission signed by the legal heir(s) / Legal Representatives / claimant(s) with their specimen signature(s);
3. Succession Certificate or Letter of Administration or Probate of Will;
4. Original share certificate(s);
5. Orders of the Court or The corporation may seek documentary proof of the legal heir’s or other claimants’ identities, such as a PAN Card, Passport, Ration Card, Voter’s identities Card, and so on.

Other instruments, including fixed deposits, would still require the same paperwork for transfers. To facilitate the transfer of shares in the appropriate circumstances, the firm may waive the production of particular documents, such as a will, a letter of administration, or a succession certificate. However, the corporation may request an adequate affidavit and indemnity in such cases. Under Section 109, the Shares may be transferred by the Deceased Member’s Legal Representative. Under Section 109A, a person may nominate himself or herself in connection to his Shares. The shares pass to the nominee if one has been designated when the member passes away.

According to Section 109B, the Nominee can choose whether to register himself as the holder of the dead shareholder’s shares or transfer the shares to any other person. The transferees may not necessarily have to be the shareholder(s)’s legitimate heirs. In circumstances where businesses include provisions similar to Regulation 26 of Table A of Schedule I to the Act in their Articles, a person becoming entitled to Shares as a result of the insolvency of a Member may have similar rights.

In transmission, nomination gains relevance. The business must keep the nominee’s information in a separate register and notify the shareholder that it has been done. It is advised that this data be entered into the Members’ Register along with a cross-reference to the register used for documenting nominations. If the nominee is a minor, the shares should be transferred to the minor under the guardianship specified in the nomination form until the minor reaches the majority, but the beneficial interest will remain with the minor in the case where the shareholder passes away while the nominee is still a minor. If a lunatic or insolvent person owned the shares, the corporation may insist on a court decree stating that person’s insanity or insolvency and naming a legal representative or administrator, if appropriate, to manage that person’s estate. If the Company’s Articles state otherwise, such provisions shall take precedence over the Standard’s guiding principles.

Transmission of shears Held Jointly

With a nomination

1. If a sole shareholder who has designated a nominee passes away, the company must register the shares in the nominee’s name within 30 days of getting a written notice signed by the nominee and accompanied by the original share certificates and the shareholder’s death certificate.
2. When a sole shareholder who has designated a nominee passes away, the company must, within 30 days of getting a written notice signed by the nominee and accompanied by the shareholder’s death certificate, the original share certificates, and a duly executed transfer deed, register the shares in the name of whoever the nominee has chosen.

The Nominee can decide whether to list himself as the deceased person’s shareholder or to transfer the shares to someone else. The Nominee should announce his intention for this purpose. The Act’s transfer-related limitations, restrictions, and requirements will all be applicable.

Application for transmission of data duly signed by the registered Nominee, along with the necessary paperwork:

• Notarized copy of the dead shareholder’s Death Certificate;
• Self-attested copy of the registered Nominee’s PAN (Copy of PAN may be substituted with ID Proof in the event of inhabitants of states where obtaining PAN is not mandatory, along with a valid Address Proof).

Without nomination

• If a sole shareholder who has not appointed a Nominee dies leaving a Will, the company should, within 30 days of receiving a written request from the Executor or beneficiary named in the Will, accompanied by the certificate evidencing the shareholder’s death and the Probated Will, register the Shares in the names of those persons who are entitled to the Shares under the Will.

The Board may, at its discretion, forgo the requirement of probating the Will in exchange for other satisfactory evidence of the Will’s validity.

The application for the request for Transmission needs to be signed by the Legal Heir(s), together with the following documents:

• A notarized copy of the deceased shareholder’s death certificate. In the case of a vernacular language, the document must be translated into English/Hindi. ii. A self-attested copy of the pan card must be confirmed by the bank Manager using their official stamp and seal;
• Bank-attested specimen signature of the successor;
• Self-attested copy of Telephone Bill/Electricity Bill (not older than three months) and Voter Id;
• NOC from all legal heir(s) who do not object to such transmission, along with a copy of the legal heirship certificate (or) copy of the family settlement deed duly notarized or attested by Gazetted Officer and executed by all the legal heirs of the deceased holder;
• Indemnity made on an appropriate non-judicial stamp paper in the amount of Rs. 200/- vii. Affidavit on appropriate non-judicial stamp paper or Rs. 100/- from all legal heirs to the effect of identification and claim of legal ownership to the securities. If the legal heir/claimant is named in the Will, Succession Certificate, Probate of the Will, or Letter of Administration, an affidavit from such legal heir(s)/claimant(s) will suffice.

Transmission of Shares Held Jointly

1. When shares are held in joint names and the holders have jointly designated a nominee, the company must register the shares in the nominee’s name within 30 days of receiving a written notice signed by the nominee and accompanied by certificates attesting to the deaths of all joint shareholders.
2. When holders of shares held in joint names jointly designate a nominee, the company must, within 30 days of getting a written notice from the nominee and a certificate attesting to the passing of each joint shareholder, register the shares in the name of the nominee’s choice.
3. Shares will only vest in the Nominee when joint holders have jointly appointed one and only in the event that all joint holders pass away.
4. When shares are held in joint names, the corporation should, upon receiving a written request from the survivor(s) and the certificate proving the shareholder’s demise, register the shares in the survivor(s)’ names. The remaining holders would then be able to change the nomination.

Table F of Companies Act, 2013

The applicable provisions in the schedule are as follows:

1. Eligible persons: The persons eligible to apply for the transmission of shares on the death of the member under Rule 23 are:
2. Survivor/Survivors, in case the shares are held jointly.
3. Nominee /Nominees
4. Legal representatives
5. Election: Any person becoming entitled to the shares can elect: He as the holder of the share or make a transfer of share, as the member had made when he was alive
6. Delivery of Documents: The individual who obtains the right to share as a result of transmission is the one who is in possession of the right to receive the profits. He also acquires all rights attached to the shares as well as dividends.
7. Entitle for Dividends: The right to receive the dividends is held by the person who gains the right to share as a result of transmission. He also receives dividends and all rights related to the shares.

In a case where a legal heir certificate is required, the accompanying supporting documents listed below must be submitted with the certificate:

1. Indemnity bond, duly notarized
2. NOC from all legal heir who has relinquished their right.

In the case where securities are held in physical form are limited to INR 5 lakhs, whereas securities held in dematerialized form are limited to INR 15 lakhs. The accompanying documents are as follows:

1. Indemnity bond, duly notarized
2. NOC from legal heirs

A succession certificate or probate of will or will or letter of administration or court decision, as applicable in terms of the Indian Succession Act of 1925, may be submitted for the value of securities up to INR 2 lakhs per listed firm as of the date of application. In the absence of such documentation, however, the following documents may be submitted:

• No objection certificate from all legal heirs who do not object to such transmission or suitably notarized and executed copy of family settlement deed by all legal heirs of the deceased holder.
• An indemnity bond, executed on appropriate non-judicial stamp paper, ensuring the Share Transfer Agent / listed entity.

A succession certificate or probate of will or will or letter of administration or court order, as applicable in terms of the Indian Succession Act of 1925, must be submitted for stocks valued at more than INR 2 lakhs per listed firm as of the date of application. However, at its discretion, the listed firm may increase the value of securities up to a limit of INR 2 lakhs.

Procedure for Transmission of Shares

On May 18, 2022, the SEBI issued¹ a circular outlining the operational guidelines for the transmission of shares:

1. The claimant of the share must apply to the issuer business for the transfer of shares.
2. After reviewing the documentation, The issuer company executes the transmission by issuing a LOC (Letter of Confirmation).
3. The RTA (Registrar and Transfer Agent) must keep the actual shares and stamp a copy of the certificate or the reverse of the certificate that will be handed to the claimant.
4. The issuer firms must send the claimant a digitally signed copy of the LOC via registered mail.
5. After receiving the digitally signed LOC, the claimant must submit the DEMAT request to the Depository participant within 120 days of the LOC’s issuance.
6. The depository participant shall provide the claimant’s DEMAT request and forward it to the issuer firm for the formation of the DEMAT account.
7. If the claimant does not file the DEMAT request within 120 days after the LOC’s issue, the securities will be credited to the Issuer Company’s Suspense Escrow DEMAT Account.

Other Requirements

• Share certificates shall be endorsed in the name(s) of the person(s) to whom the Shares are conveyed at the time of transmission. Suppose the claimant for the transfer of shares of a deceased shareholder is unable to present the original share certificates. In that case, the corporation should issue duplicate share certificates after following the procedure.
• Every company should keep a register with details on all transmissions.

The Register kept for recording Transmission should be presented to the Board so it can be registered. In order to demonstrate approval, the Chairman of the Board should date and initial the last entry in the Register for each set of approvals.

Changes to the Register of Members should be made by the Company Secretary or another authorised person.

• The transmission register and records should be kept permanently and held in the custody of the company’s secretary or any other person authorised by the Board for that purpose.

The Secretarial Standard on Registers and Records contains a detailed reference to this Register.

Conclusion

In the simplest terms, “Transmission of Shares” refers to a procedure wherein the legal ownership of the shares is transferred. However, it won’t happen until the company’s registered member has passed away, been declared insolvent, or been deemed insane by a court of competent law.

Frequently asked questions (FAQs)

Suggested Read: Company Share Transfer

1. https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListingAll=yes