The Difference Between Transfer and Transmission of Shares: What You Must Know!

Posted by Infiny Solution on May 18th, 2021

For those who have some basic knowledge about shares and securities, would already know that the shares of an individual inside a company are transferable. This is what enables businesses in acquiring permanent capital and liquidating the investments of its shareholders. Although that is not everything that you need about the transfer and transmission of shares. 

There are a lot of other legalities and details associated with the transfer of shares. To begin with, securities are transferred under some constraints. Shares are transferable under the acts mentioned in the Articles of Association (AOA) of the particular company, under which the share transactions of private companies are restricted. 

In this article, we will talk about everything you need to know about the transmission and transfer of shares. From basic definition, to procedures as well as all associated legalities and other details like the time limits, and its penalties, we have ensured that by reading further you get the most comprehensive knowledge about the transfer and transmission of shares. 

What is transfer of securities? 

Transfer basically means an operation where an asset is moved. This movement can be a physical movement of an asset as well as can be a movement in the ownership of the title of the asset. The transfer of securities can be voluntary or it may be operational by law. So, transfer of securities can also be defined as handing over the rights and duties of a member of a company to another person who is willing to become a member of the company. 

The transfer of shares is a voluntary operation or act that can be initiated by the shareholder and it takes place through the process of a contract. The transferor is the person who transfers the shares and the transferee is the person who gets the ownership of the shares. 

The laws and parties involved in transfer of shares

Transferring of shares can be freely done unless a public company is disallowed to transfer their shares for some reason. The shares of a private limited company cannot be transferred. Although there are some exceptions and a transfer deed is needed for the transferring of shares. 

The Sections 56 of the Company Act 2013 deals with the transfer of shares. It states that shares are movable and can be transferred in adherence to the particular company’s AOA. The parties involved in the transfer of shares are: 

• Legal representatives of the deceased or in case the shareholder has become insolvent.

• The subscribers to the Memorandum

• Transferor

• Transferee

• The listed or unlisted company 

It must also be noted that in case of transfer of shares, securities certificates must be transferred or transmitted within one month from the date of receipt of the instrument of transfer by every company. If needed you may also need to approach concerned authorities for the issue of duplicate share certificates. 

What is transmission of shares?  

As we already said, transfer and transmission of shares are different from each other. In case of transmission of shares, the shares are passed to the deceased’s legal representative and and in case of bankruptcy, it will be transferred to the official assignee. The exchange of shares is an automatic process when the owner of the share dies and passes to the person’s representative immediately. It also happens when a member declares his or her bankruptcy or mental instability. 

The transmission of shares does not need the execution of the transfer deed, and the transferee will receive rights of the shares. The transmission will only be recorded when the transferee furnishes proof of entitlement to the shares.

The requirements for transmission of shares 

While there is no need for a transfer deed, but the transmission of shares has some other requirements. Let us take a look at these:  

• Updation of KYC’s and Signatures of the successor

• Copy of PAN card (Self-attested)

• Certified copy of the Death Certificate 

• Succession certificate/ Will of the deceased / Probate of Will/Letter of Administration/ Court Decree

Differences Between Transfer and Transmission of Shares: Key Highlights 

• Share transfer is voluntary but share transmission takes place under the law under certain conditions.

• Share transfer is done by the transferor and transferee and transmission is done by the legal heir or receiver

• Liability of transferor ceases upon transfer but it remains to exist in case of transmission. 

All that being said, we hope that we have cleared the confusion about the transfer and transmission of shares. It is a common notion that the two are the same, but in this article, we have made it amply clear how the two are different from each other. With these things in mind, any person can be more knowledgeable and can execute the transfer or transmission more efficiently!