Share Transfer Vs Share Transmission

Introduction

A transfer is an action that entails moving an asset; in the case of shares, this action may be prescribed by law or may be voluntary. When a shareholder transfers their shares willingly and following an official agreement, the shares are considered to be transferred. Whereas the transfer of shares is known as "transmission of shares," it can also happen by operation of law in the event of a shareholder's death, insolvency, or mental illness. In this article, we will discuss the definitions of "share transfer" and "share transmission," as well as the differences between these two terms.

What does the term "share transfer" mean?

A transfer of shares occurs when there is a deliberate change in ownership between the transferor (the person who transfers) and the transferee (the person who receives). Shares of a public limited company are transferable unless the firm has a valid reason to prohibit it. Shares of a private limited company are not transferable like those of a public company.

What does the term "share transmission" mean?

Share transmission refers to a share transfer that occurs when the original holder dies, becomes insane, or becomes insolvent at that moment. The transferee is not required to execute a transfer document in order to obtain the rights to the shares; the transmission is only documented in the event that the transferee presents proof of their ownership of the shares. In the case of the holder's death, the shares will be transferred to the legal representative; in the case of insolvency, the shares will be transferred to the official assignee.

Transfer and transmission of shares, as per the Companies Act 2013

A. Transfer of shares that comply with Section 56 of the Companies Act

It is based upon the execution by or on behalf of the transferor and the transferee of a proper instrument of transfer in Form SH-4, governed by sub-rule 1 of Rule 11 of the Companies (Share Capital & Debenture) Rules 2014, which must include all the required information, which comprises the transferee's name, address, and occupation, if any. Only then will the transfer become effective. Within sixty days following the date of execution, it must be handed over to the company by one of the parties in addition to a certificate of securities or a letter of allocation of securities, as applicable.

In accordance with sub-rule 3 of Rule 11 of the Companies (Share Capital and Debentures) Rules 2014, if the transferor submits an application for the transfer of partially paid shares, the company notifies the transferee of the application using Form SH-5. The transferee has two weeks from the date of receipt of the notice to withdraw any objections.

B. Transmission of shares that comply with Section 56 of the Companies Act

When the application for the transmission of shares and the required documentation are approved, it will be impacted. Transfer deed execution is not necessary in the case of share transmission. The following documents are necessary for the transfer of shares.

• Self-attested copy of PAN card
• Successor's Signature
• Copy of the Death Certificate
• Probate of Will, Letter of Administration, Court Order
• Succession Certificate.

Key Differences between Share Transfer and Share Transmission

Transfer of Shares

• When one person freely transfers title to another, it is referred to as a "transfer of shares."
• A shareholder transfers shares to another party on purpose.
• The transferor's liabilities are fulfilled with the completion of the transfer.
• Stamp duty ought to be paid when the transfer of shares is done.
• On the other hand, at the time of a share transfer, there is a need to execute an accurate document.
• At the time of the share transfer, there must be adequate study.

Transmission of Shares

• The term transmission of shares refers to the legal transfer of ownership of shares.
• Impacted by member insanity, bankruptcy, death, or inheritance.
• The legal receiver or substitute of the shares handles the procedure.
• Shares' original obligation (liability) is still in effect.
• The transmission of shares does not require the payment of stamp duty.
• It is not necessary to execute a formal transfer deed.
• At the moment of share transmission, nothing is exchanged.

Penalties for non-compliance

Any violation of the implied rules and regulations by company law will result in a punishment for the firm of not less than INR 25,000 but not exceeding INR 5,00,000, and each officer of the company who is in default will face a fine of not less than INR 10,000 but not exceeding INR 100,000.

Conclusion

The goal of both share transfers and share transmissions is to alter the title of the shares. However, share transfers are voluntary, whereas share transmissions are mandated by law and are initiated by the recipient or legal representative.

The author is an operations director and co-founder of Ebizfiling India Private Limited, has 13+ years of rich and profound experience with various corporate sectors, and has led teams of 50+ professionals. In due process, I gained vast knowledge of all the areas of Indian statutory compliance, including laws and taxation. She can also be reached at info@ebizfiling.com.