One of the most important characteristics of a company is that its shares are transferable. Section 44 of the Companies Act, 2013 states that the shares or debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. Transfer of shares means the voluntary handing over of the rights and the duties / liabilities of a company member (as represented in a share of the company). Transfer of securities is generally made for some consideration. Transmission of shares means where a person acquires an interest in property by operation of law, such as by right of inheritance or by reason of the insolvency or lunacy of the holder of securities or by purchase in a Court-sale.
Transmission of Shares:
One of the most important characteristics of a company is that its shares are transferable. Section 44 of the Companies Act, 2013 states that the shares or debentures or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company.
Transmission of securities has not been defined by the Companies Act. Transmission of securities means where a person acquires an interest in property by operation of law, such as by right of inheritance or by reason of the insolvency or lunacy of the holder of securities or by purchase in a Court-sale.
Thus, transmission of securities takes place when the registered holder of securities dies or is adjudicated as an insolvent, or if the holder of securities is a company, it goes into liquidation. Because a deceased person cannot own anything, the ownership of all his property passes, after his death, to those who legally represent him. Similarly, when a person is declared insolvent, his entire property vests in the Official Assignee or Official Receiver. Upon the death of a sole registered holder of securities, so far as the company is concerned, the legal representatives of the deceased holder of securities are the only persons having title to the securities unless securities-holder had appointed a nominee, in which case he would be entitled to the exclusion of all others.
Transmission in Case of Sole Owner:
When a registered shareholder dies, his shares vest in his legal representative. If they wish, they may ask the company to register them as the holder of these shares and for this purpose no instrument of transfer is required and the company is bound to accept the probate of will or letters of administration as sufficient evidence of the title to those shares. When they are registered as the holder of these shares and their names are put on the company’s register of members, they become personally liable on the shares. Thus, if the shares are not fully paid, they will be liable to pay the unpaid value of the shares.
If a widow applies for transmission of the shares standing in the name of her deceased husband without producing a succession certificate and if the articles of association of the company so authorizes, the directors may dispense with the production of succession certificate, upon such terms as to indemnity as the directors may consider necessary, and transmit the shares to the widow of the deceased by obtaining an indemnity bond.
If a registered shareholder is adjudged an insolvent, his shares vest in the Official Assignee or Receiver who may either get himself registered as the holder of these shares or transfer them to another person. The Official Assignee or Receiver can also disclaim the shares if they contain liability. Usually, the articles of the company contain provisions relating to the transmission of shares. If the transmission is not accepted by the company, the same remedies are available against the company as in the case of the refusal of a transfer of shares.
Transmission of Joint Holdings:
In case some shares are registered in joint names and the articles of the company provide that the survivor shall be the only person to be recognized by the company as having any title to the shares, the company is justified in refusing to register the transmission of title by operation of law in favor of the son of the deceased holder even though he may obtain succession certificate from the Court
Distinguishing Between Transfer of Shares and Transmission of shares:
| Transfer of Shares | Transmission of Shares |
| Transfer takes place by a voluntary or deliberate act of the parties by way of a contract. | Transmission is the result of the operation of law. For example, due to death, insolvency or lunacy of a member. |
| An instrument of transfer is required in case of transfer. | No instrument of transfer is required in case of transmission. |
| Transfer is a normal course of transferring property. | Transmission takes place on death or insolvency of a holder of securities. |
| Transfer of securities is generally made for some consideration. | Transmission of securities is generally made without any consideration. |
| Stamp duty is payable on transfer of securities by a holder of securities. | No stamp duty is payable on transmission of securities. |
| As soon as transfer is complete, the liability of the transferor ceases. | Shares continue to be subject to the original liabilities. |
Nomination of Shares:
Nomination refers to the act of nominating a person in whom the shares would vest in the event of death of the shareholder. The Companies Act, 2013 allows a shareholder to make nomination with regard to shares held by him in a company. Section 72 of the Act provides that every holder of securities of a company may nominate any person to whom his securities shall vest in the event of his death. The term Securities includes shares of a company.
A company has to maintain a Register of nominations filed with it and registered by it. The contents of the register have to be eventually updated and duly authenticated by the Company Secretary or such other person as may be authorised by the board. On receipt of intimation of death of the shareholder, the company secretary has to ensure from the register that the shareholder has filed a nomination and that such nomination is valid.
A nominee can deal with the shares as if the deceased shareholder has mandated the transaction to the company. A nominee shall be entitled to same dividends or interests and other advantages as if he had been the original owner of shares. Also, if he opts to register himself as the holder of shares, he can exercise all membership rights in relation to the meeting as conferred by the Articles of Association.
Only individuals holding accounts either singly or jointly can make nomination. Non individuals including society, trust, body corporate, Karta of Hindu Undivided Family, holder of power of attorney cannot nominate. Nomination once made can be revoked by a shareholder by giving a fresh nomination. If the nomination is made by joint holders, and one of the joint-holders dies, the remaining joint holder/s can make a fresh nomination by revoking existing nomination.
Notwithstanding anything contained in any other law or any testamentary deposition or otherwise, in respect of the shares, where a nomination has been made in accordance with the provisions of Companies Act, 2013, on the death of the shareholder, (or in case of joint holdings, on the death of all the joint holders), the Nominee shall become entitled to the rights in relation to such shares held by the deceased shareholder(s), to the exclusion of all other persons unless the nomination is revoked.
Conclusion:
Transmission of securities means where a person acquires an interest in property by operation of law, such as by right of inheritance or by reason of the insolvency or lunacy of the holder of securities or by purchase in a Court-sale. Thus, transmission of securities takes place when the registered holder of securities dies or is adjudicated as an insolvent, or if the holder of securities is a company, it goes into liquidation. Nomination refers to the act of nominating a person in whom the shares would vest in the event of death of the shareholder. Notwithstanding anything contained in any other law or any testamentary deposition or otherwise, in respect of the shares, where a nomination has been made in accordance with the provisions of Companies Act, 2013, on the death of the shareholder, (or in case of joint holdings, on the death of all the joint holders), the Nominee shall become entitled to the rights in relation to such shares held by the deceased shareholder(s).