Distinguish Between Transfer of Shares and Transmission of Shares

Shares, as you might be aware, are the brick and mortar for ownership in a company. Your shares are the definition and representation of your stakes, rights, and claims to profits and assets. In India, as per the 2013 Companies Act, you can acquire ownership of shares in two ways, namely, share transfer and share transmission.

Although they sound quite similar, they are significantly different from each other in terms of their purpose, procedure, and legality. Confused? Well, don’t be, as this blog would be the light of enlightenment for you to understand the difference between share transfer and share transmission. Let’s get started.

What is Share Transfer?

As you might have interpreted from the term, share transfer refers to the transfer of shares. Let’s give you a broader definition. Share transfer is the voluntary transfer of the ownership of shares from one person to another, usually in return for some consideration (such as a payment). Notice the word “voluntary” here, it’s the prime factor that makes all the difference as we move ahead in this blog.

Share transfer is quite common among the private and public limited firms in India, and it involves documentation, approval, and payment of stamp duty in the process. Governed by section 56 of the Companies Act (2013), the widespread practice of transferring shares is evident from the fact that more than 950 million public limited firms underwent a transfer of shares during the Financial Year of 2023-2024.

In short, share transfer is legal, documented, and deliberate.

What is Share Transmission?

On the contrary, share transmission refers to the transmission of shares from a shareholder to their heir or legal representative. Remember the “voluntary” highlight when we talked about share transfer? Well, unlike that, the transmission of shares is a rather involuntary process.

The reason behind this method being involuntary is due to the fact that it happens by operation of law, but particularly due to the death, insolvency, or mental incapacity of the present shareholder. In such cases, the shares are transferred to the legal heir or representative, without any consideration or need for a share transfer deed.

Think of it as passing the baton; seamless, required, and backed by law.

Key Comparison Between Share Transfer and Share Transmission

To clear the fog and broaden your spectrum, here is a side-by-side comparison between share transfer and share transmission. This section would give you a broader insight into the key differences that these two methods share, based on different factors.

Nature: Voluntary Act vs Operation of Law

• Share Transfer: It’s a voluntary action that is initiated willingly by the shareholder.
• Share Transmission: Triggered by events like death or insolvency, it occurs automatically under legal provisions.

Initiated by: Transferor & Transferee vs Legal Representative

• Share Transfer: Both the seller and buyer are involved, making it a two-party agreement.
• Share Transmission: Initiated by the legal heir, executor, or nominee of the deceased shareholder.

Documentation: Form SH-4 vs Proof of Entitlement

• Share Transfer: Requires Form SH-4, the official Share Transfer Deed as per Indian regulations.
• Share Transmission: No deed is required- just a death certificate, a succession certificate, or probate of a will would do the job.

Stamp Duty: Payable vs Not Payable

• Share Transfer: Stamp duty is mandatory under the Indian Stamp Act. It’s typically 0.25% of the consideration amount.
• Share Transmission: No stamp duty is payable, since transmission doesn’t involve a sale or gift.

Consideration: Sale or Gift vs No Consideration

• Share Transfer: Usually for monetary consideration or as a gift.
• Share Transmission: Happens without any financial exchange- it’s an inheritance or succession.

Approval: Company’s Board vs Automatic Update

• Share Transfer: Requires approval and registration from the board in the shareholders’ register.
• Share Transmission: The company records the change upon verification of the documents- no approval needed.

Liability: Transferor Released vs Heir Assumes Responsibility

• Share Transfer: The transferor’s liability comes to an end once the transfer is done.
• Share Transmission: The legal heir or representative is responsible for undertaking all shareholder responsibilities.

Facts Corner

As per the 2023 annual report from the MCA, more than 20000 share transfer cases and 15000 share transmission cases were taken into account across the entire country. These cases were resolved by corporate dispute resolution mechanisms, thus showcasing the increasing relevance of both procedures.

Legal Provisions under Companies Act, 2013

According to Section 56 of the 2013 Companies Act, share transfers must be registered by the company within 2 months (or 60 days) of the deed being presented. On the other hand, the process of transmission of shares is under the direct jurisdiction of the company’s articles of association, hence eliminating the need for a deed or approval.

However, you should also keep in mind that if there is a nominee who is listed under section 72, the shares would automatically be transmitted to the nominee, thus reducing the complications for the legal heirs.

Importance of Understanding the Difference

You might ask, Why do I need to know all of this? Well, my friend, failing to differentiate between the two vital methods in share acquisition increases the risks of delays, legal disputes, as well as penalties due to legal violations. In India, numerous legal heirs face procedural hindrances due to missing documents or improper filings.

Whether you are a startup founder or an investor in a family business, knowing the difference between share transfer and share transmission can help you avert legal battles. It would also help you save your time, money, efforts, and eventual headaches.

A Pro Tip

In India, unclaimed shares often end up with the Investor Education and Protection Fund (IEPF). Knowing how transmission works can help you avoid a loss of shareholder rights to a great extent.

Wrapping Up

In the intricate world of corporate compliance, knowing the difference between share transfer and share transmission is crucial, not just for legal accuracy but for protecting your ownership rights. This helps you in maintaining smooth business operations. Whether you’re initiating a transfer of shares voluntarily or navigating a share transmission due to inheritance. Clarity on the legal procedures can save time, money, and future disputes.

If you are looking for expert assistance with share transfer or share transmission in India, then Infiny Solutions might be the helping hand you need. At Infiny Solutions, we provide a range of comprehensive support, including preparing and filing the documents to ensure total legal and procedural compliance.

Don’t keep your shares waiting, it’s time to claim what’s yours. Contact us today and reap the benefits.

FAQs on the Difference Between Share Transfer and Share Transmission

Is Stamp Duty required for share transmission?

No, stamp duty is not applicable and unnecessary for share transmission in India. The reason? Share transmission, unlike share transfer, is not accounted for as a sale or transfer by agreement. It is more of a legal right passed on to heirs.

Can shares of a private company be freely transferred?

Unfortunately, or however you’d term it, shares of a private company are not freely transferable, due to the company’s Articles of Association (AoA) that impose numerous restrictions, which include requiring board approval or giving initial refusal to existing shareholders.

What happens if the required documents are not submitted?

The company may refuse to register your transfer or transmission, as for share transmission, legal heirs may need to obtain a succession certificate or probate, which can be time-consuming and expensive if delayed.