Stocks are the fundamental type of security in company ownership, as they show a shareholder’s interest in a corporation. For several good reasons, such as a change in the fortunes of the business, alteration in an individual’s circumstances whereby they would need to make changes in their shareholding, thus transfer and transmission of shares. These procedures guarantee the right people own the shares or that the shares are properly managed. In conformity with the existing law and business ethics. Any person or corporate entity who wants to transfer or transmit the shares must understand the diverse aspects related to it so that no complication arises and the exchange complies with the Companies Act, 2013. This article looks at the various regulations, processes, and differences between these two fundamental ideas and will enable you to manage such transactions effectively.
What is Share Transfer?
Share transfer can also be described as the decision made by the shareholder to allow another person to own shares in the organization. This process is often done on mutual consent of the transferor, the individual who is transferring the asset (seller in the sale process) and the transferee, the individual to whom the asset is transferred (buyer in the sale process), after following all the business related formalities and legal requirements recognized for a particular company. It can be implemented in many situations, like the selling and buying of shares in the stock exchange, the selling and buying of shares between family members, and getting rid of stakes with mutual partners or investors.
Share transfer can be done through signing a share transfer form with the right stamp duty, and filing documents in the company. After receiving the nod from the company’s board of directors, the name of the transferee is recorded in the company’s register of members.
What is Share Transmission?
While share transfer is voluntary, share transmission takes place by the law courts to make it happen. It refers to the process of passing on the shares to a third party because of events which are unavoidable for instance death, insolvency or disability that befalls the shareholder. Such occurrences entail the passing of shares to the legal next of kin, nominee, or representing entity of the deceased or the incapacitated shareholder without entering a legal agreement.
The process of share transmission is relatively straightforward and does not involve stamp duty since it is not a voluntary sale or transfer. The successor must provide documentary evidence, such as a death certificate, succession certificate, or probate of the will, to claim ownership of the shares. Once verified, the company updates its register of members to reflect the new ownership. Share transmission ensures the seamless transition of ownership while safeguarding the rights and interests of the rightful claimant.
Difference Between Transfer and Transmission of Shares Under the Companies Act, 2013
While both share transfer and share transmission lead to a change of ownership, both of them are radically different in terms of the characteristics, the procedures, and the consequences. Share transfer is different from share transfer in that it can be motivated by money, although it involves the discretion of the shareholder. In contrast, share transmission is an unwanted act that results from legal occurrences such as death or bankruptcy.
The last difference can be pointed out in documentation and compliance processes. Any transfer requires that a transfer deed be prepared and stamped as well as the consideration for stamp duty. On the other hand, for shared transmission, one has to offer the legal event that has happened, for instance, a death certificate or a court order, without having to pay stamp duties. The cycle and all the procedures that they undertake are equally different and may take more time, especially for share transfer, as it is contractual. Knowledge of the aforementioned differences is necessary for the operation of shareholders and corporations, which would be subjected to official ownership change mechanisms provided in the Act of 2013.
Transfer and Transmission of Shares as per Companies Act, 2013
The laws governing the transfer and transmission of shares are majorly owed to the Companies Act of 2013 in India. Regarding the provisions that guarantee transparency, accountability, and shareholders’ protection in such processes under the Act, there are detailed provisions as follows. Requirements of section 56 of the Act speak in detail about the provisions related to share transfer and require that a share transfer deed be filed in the prescribed form SH-4, that stamp duty be paid, and that the deed along with the share certificates be submitted to the company within a certain period. The transfer can only be done with the permission of the company’s board of directors, or it will be rejected if it violates the Articles of Association.
Concerning share transmission, the Act is flexible to cater to the legal and inevitable occurrence of ownership transfer.
The legal heir or nominee must submit relevant documents, such as a death certificate and succession certificate, to the company. Upon verification, the company updates its register of members to reflect the new ownership. The Companies Act also emphasizes the importance of maintaining accurate records and ensuring that the process does not infringe upon the rights of the rightful claimant.
By adhering to the provisions of the Companies Act, 2013, companies and shareholders can ensure that both share transfer and transmission are conducted in a fair, efficient, and legally compliant manner.
Conclusion
Transfer and transmission of shares are integral to the dynamic landscape of corporate ownership, enabling seamless transitions while safeguarding stakeholder interests. Whether it involves a voluntary transaction or an inevitable legal event, these processes require a thorough understanding of the underlying rules and regulations. The Companies Act, of 2013, provides a robust framework for managing these changes, ensuring transparency, compliance, and protection of shareholder rights. For investors and companies alike, navigating the complexities of share transfer and transmission with clarity and precision is essential to maintaining trust and accountability. If you need expert assistance with these processes, Shares Recover offers reliable solutions tailored to your needs.
FAQs
1. Can a company refuse a valid share transfer request?
Yes, a company can refuse a valid share transfer request under certain circumstances, such as if the transfer violates the company’s Articles of Association or if the transferee is not deemed suitable by the company.
2. What happens if a shareholder dies without leaving a will or nominating a successor?
In the absence of a will or nomination, the succession laws of the relevant jurisdiction will determine the legal heirs of the deceased shareholder, and they will be entitled to inherit the shares.
3. Can a shareholder transfer only a portion of their shares?
Yes, a shareholder can typically transfer only a portion of their shares. However, the specific rules regarding partial transfers may vary depending on the company’s Articles of Association.
4. Are there any restrictions on who can be a transferee of shares?
Yes, there may be restrictions on who can be a transferee of shares. For example, some companies may have restrictions on transfers to non-residents or competitors.
5. What are the implications of transferring shares without complying with the Companies Act, of 2013?
Transferring shares without complying with the Companies Act, 2013, can have serious consequences, including penalties for the transferor and the transferee, and the transfer may be deemed invalid.
