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Simplifying The Transmission of Shares & Its Legal Procedures

28, May 2024
Simplifying The Transmission of Shares & Its Legal Procedures

When it comes to having an ownership in company, shareholders are part owners of company. However, there are times when shares need to be transferred due to unexpected circumstances. Share Samadhan, India's Largest Unclaimed Investments Retrieval Advisory is right there regardless of the stage at which you encounter obstacles! This blog is a guide to share recovery, about the process of share transmission and its procedural nuances.

What is the Transmission of Shares?

The process that involves transferring possession of shares from one to another due to the death of the shareholder is known as the transmission of shares. Section 56 of the Companies Act of 2013 says that if someone legally inherits or acquires shares, the company can record this ownership change when they're informed about it.

Now, let's talk about the difference between "transmission" and "transfer" of shares. If you've inherited shares due to someone's passing or received them as a gift, that's transmission. However, if you decide to sell those shares to another individual, that's a transfer. They're both ways of changing who owns the shares, but they happen for different reasons.

You must keep in mind that there is a prominent difference between the share transmission and the transfer of shares.

The Transfer & Transmission of Shares: The Difference

Transfer of Shares: When shares are transferred, it means that one shareholder willingly sells or hands over their shares to another person. In this transaction, the current owner (transferor) passes on the ownership of the shares to a new individual (transferee).

Transmission of Sharers: Transmission of shares takes place according to inheritance laws when a shareholder passes away. Unlike a voluntary transfer, it's not a choice made by the shareholder but is instead dictated by the laws of the country.

The Procedure for the Transmission of Shares

For the transmission of Shares, understanding the process is of utmost importance. For shares valued up to 5 lakhs, you need No Objection Certificates (NOCs) from all legal heirs, confirming their consent to the transmission, along with certificates proving their status as legal heirs or surviving members. When the total worth of shares in a single company goes beyond 5 lakhs, it's necessary to acquire a succession certificate, probate of will, or letter of administration from the courts in favor of the legal heirs.

Probate of Will: Probate of will involves the legal validation of a deceased individual's will. This document details how the person's assets and estate should be distributed following their passing. Through the probate process, a court reviews and approves the authenticity of the will, ensuring its terms are carried out as intended.

Succession Certificate: A succession certificate is necessary when someone passes away without leaving a will, meaning they died intestate. This document allows the holder to handle the deceased's financial affairs, including collecting debts and securities owed to them or payable in their name. In the absence of a will, the succession certificate becomes crucial for heirs to assert their rights to the deceased's assets. Application for a succession certificate can be made in a high court or district court.

LOA (Letter of Administration): A Letter of Administration is a legal paper granted by a competent court, allowing a designated individual (known as the administrator) to manage the estate of a deceased person who didn't leave a valid will, known as intestate. The procedure is regulated by the Indian Succession Act of 1925.

When a deceased individual has a will, the legal proceedings differ, and the court might issue a "Probate" to the executor specified in the will. However, if there's no executor named or if the designated executor cannot or does not want to fulfill their duties, the court may issue Letters of Administration with the will annexed.

Legal Heir Certificates or Surviving Member Certificates: Surviving member certificates or legal heir certificates are provided by appropriate legal bodies to confirm the rightful heirs or successors of someone who has passed away. These documents serve to streamline the transfer of assets, properties, and other entitlements from the deceased individual to their lawful heirs. Legal heir certificates are sought for various purposes such as inheritance, property transfers, insurance and pension claims, employment benefits, closure of bank accounts, legal matters, government programs, settling debts, and liabilities.

When Does Transmission of Shares Occur?

Shares can be transmitted under various circumstances:

1. Death of a shareholder: When a shareholder dies, their shares can be passed on to their legal heirs or nominees.

2. Incapacity of a shareholder: If a shareholder becomes incapacitated due to illness or injury and cannot transfer their shares, these shares can be transferred to their legal heirs or nominees.

3. Insolvency of a shareholder: If a shareholder is declared insolvent, their shares may be transferred to their creditors.

4. Court orders: In certain situations, court orders may mandate the transfer of shares from one individual to another.

Legal Heirs and Nominees

Legal heirs are individuals who inherit the assets of a deceased person in accordance with the laws of succession. If the deceased shareholder did not nominate anyone, their shares will be inherited by their legal heirs, determined based on the applicable inheritance laws.

Nominees, on the other hand, are individuals chosen by the shareholder to receive the shares upon their death. Share nomination is a voluntary process that can be completed by filling out a nomination form provided by the company. The shareholder has the freedom to nominate anyone they desire to receive the shares after their passing.

For the transmission of shares, the necessary documentation includes:

1. Death certificate of the shareholder

2. Succession certificate or probate of will (if the transmission is through succession)

3. Share certificate(s)

4. Transfer deed

5. Nomination form (if the transmission is through nomination)

6. Court orders (if required)

Conclusion

The transmission of shares is a crucial procedure that guarantees the seamless transfer of share ownership between individuals. Adhering to the correct protocol is essential to ensure legal validity and accurate transfer to the rightful legal heirs or nominees. If uncertain about the transmission process, it's recommended to seek guidance from a legal expert of Share Samadhan. The executive will assist you throughout the process.

FAQs:

  1. Can a shareholder nominate more than one person to receive their shares?
  2. Yes, shareholders can nominate multiple individuals to receive their shares in the event of death, providing flexibility in share transmission according to the shareholder's wishes.

  3. What happens if the deceased shareholder does not nominate anyone to receive their shares?
  4. In the absence of a nomination, the shares are inherited by legal heirs as per applicable inheritance laws, ensuring rightful distribution.

  5. What is a succession certificate or probate of will?
  6. A succession certificate or probate of will grants legal heirs authorization for the transfer of assets, including shares, facilitating the legal process of inheritance.

  7. Is it necessary to obtain a succession certificate or probate of will for the transmission of shares?
  8. Yes, legal heirs need a succession certificate or probate to transfer shares if the deceased shareholder didn't nominate anyone, ensuring proper validation of ownership transfer.

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