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Individual shareholder dies

Pallavi Moonka (company sectretary) (112 Points)

06 June 2016

Its a Public Ltd Co which is a 50:50 JV between two companies. In order to have min 7 members, one of the company has appointed 5 individual as members, giving them a nominal amount of shares, which is registered in their name. One of the individual shareholder dies, what shall the company do? Will the provisions of transmission follow or the shares will vest in the company who appointed these individuals as shareholders? Please cite relevant provisions.

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10 Replies

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 06 June 2016

In case of death of a registered shareholder, shares can be transmitted to legal representative of a deceased shareholder.For statutory provisions related to Transmission of share one should refer the following sources:

1. Section 56 of Companies Act, 2013

2. Provisions given in model articles of association given in Table ‘F’ of Schedule-I.

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Pallavi Moonka (company sectretary) (112 Points)
Replied 06 June 2016

So the shares will not be transferred to the beneficial holder?

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 06 June 2016

If the legal representative does not makes an application for transmission within the time limit prescribed under the provisions then the company shall have lien over such shares.

Pallavi Moonka (company sectretary) (112 Points)
Replied 06 June 2016

can you justify your ans citing relevant provisions or case laws?

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 06 June 2016

refer section 56(1) read with section 56(5).

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Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 07 June 2016

If a holder of share dies, then the beneficial owner shall receive the share. Such beneficial owner shall file declaration under Section 89 about change in holder of such share.

Such shares can not go to legal representative/heir of deceased person because the deceased person was not having a beneficial interest in such shares. I hope this clarifies.

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Pallavi Moonka (company sectretary) (112 Points)
Replied 07 June 2016

Sir, could you please cite me the provision in support of the above statement.

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 07 June 2016

The Companies Act, 2013 does not have any provision clarifing this point. You need to look if there is any case law. I will let you know if I find any.

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Pallavi Moonka (company sectretary) (112 Points)
Replied 07 June 2016

Thank you so much but Sir could you tell me on what basis did you form this opinion?

Pratik Shah (Practising Company Secretary) (4432 Points)
Replied 08 June 2016

Because the holder of shares does not have beneficial ownership of shares. This is the basic reason that shares should not go to legal heir of the holder.