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Shalini Singh
| Updated: 12 Oct, 2019 | Category: SEBI Registration

Transfer and Transmission of Securities – Procedure of Transfer, Time Limits, and Penalties

Transfer and Transmission of Securities

The Shares of an individual inside a company are transferable which facilitates the company in acquiring permanent capital and liquidate investments into the shareholders. But there are some constraints under which the securities are transferred. They are transferable by the acts mentioned in the Articles of Association (AOA) of the company under which the private companies are restricted. Here in this article, we will see in detail the meaning, procedures for the transfer and transmission of securities, the time limits, and its penalties.

What is meant by the Transfer of Securities?

It is basically handing over the rights and duties of a member of the company to any other person who wishes to become a member of the company. It is a voluntary act of a member that is accompanied according to the articles mentioned in the AOA of the company.

Who all are involved in the Transfer of Shares?

  • Legal Representatives in case of deceased or if the concerned person is insolvent.
  • Subscribers to the Memorandum
  • Transferor
  • Transferee
  • Listed or Unlisted Company

Which law states about the Transfer of Shares?

According to Section 56 of the Companies Act, 2013[1], securities are movable property and are transferred in a manner provides by the articles mentioned in the AOA of the company. A Shareholder is free to transfer shares to a person of his own choice, whereas shares in a Private Limited company are not freely transferable.

Procedure for Transfer of Shares

  • At first, the deeds which are transferred need to be obtained in the prescribed form i.e., SH-4.
  • There are some circumstances in which the instrument of transfer may not be in the prescribed form. These are:
  • Under Section 187 of the Companies Act, 2013, when a Director or nominee transfers shares on behalf of another body incorporate.
  • In case, the Director or nominee transfers shares on behalf of a corporation owned or controlled by the Central or state government.
  • Shares transferred by way of deposit for repayment of any loan or advance if the deposit is made with any of the following banks:
    • State Bank Of India
    • Any Scheduled bank
    • Any other Banking Company
    • Financial Institution
    • Central Government
    • Any Corporation held by the Central or State Government. Government
    • State Government
    • Trustees.
  • While for transferring of the Debentures, a standard format is used as the Instrument of Share.
  • According to the provisions of the Companies Act, 2013, you need to get AOA in case of shares, trust deed in case of Debentures where the transfer deed is registered either by the transferor and the transferee.
  • According to the provisions of the Indian Stamp Act, the transfer deed should need to have stamps. The present stamp duty rate of transfer of share is 25 paisa for every One Thousand rupees of the value of the share.
  • The Stamp deed on the transfer deed is checked whether it is cancelled after the time or before the signing of the transfer deed.
  • The person who has given his signature, name, and address as approval of transfer must verify that the transferor and transferee have signed the share/ debentures transfer deed.
  • The relevant share or debenture certificate or allotment letter, along with the transfer deed, must be attached and sent to the company.
  • If the application made by the transferor is for partly paid shares, the company has to notify the amount due on shares/ debentures of the transferee. In addition to this, a no Objection Certificate is required within two weeks from the date of receipt.
  • The same value stamp is affixed on the written application if the signed transfer deed has lost. Here, the Board may register the transfer on the grounds of indemnity.
  • In case the shares of the company are listed in a recognized stock exchange, then the company cannot charge any fee for the registration of transfer of shares and debentures.

Time Limits

There are certain time limits under which transfer and transmission of securities takes place.

  • A company shall not register the transfer of securities of the company other than the beneficial owners without a proper instrument of transfer. The time prescribed is 60 days from the date of execution.
  • Application by the transferor: The transfer shall not be registered until the company gives notice of the application to the transferor. Here, the transferee gives NOC (No Objection Certificate) within two weeks from the receipt of the notice.
  • The Company has to deliver certificates of all securities allotted, transferred and transmitted in the following cases within the following mentioned time limits:
Subscribers to Memorandum Within 2 months from the date of incorporation
Allotment of any of its shares Within a period of 2 months from the allotment date.
Intimation of transmission` Within a period of 1 month from the date of receipt.
Allotment of Debenture Within a period of 6 months from the date of allotment.

Penalties

There is a minimum plenty of Rs 25000 and a maximum of Rs 5 lakh in case of a company. And For an officer the minimum amount is Rs 10000 and maximum of Rs 1 lakh.

Transmission of Securities

Transmission of Securities is quite different from the Transfer of Securities, but many of us think these two terms as the same. Here, the shares are transferred to the deceased and the official assignee of the insolvent. Transmission of shares is an automatic process when the shareholder dies and immediately passes to the personal representative or if a member is declared bankrupt.

Basic Procedure for the Transmission of Share

Following steps shall be followed for the transmission of shares

  • In the case of joint holding or legal heir, the survivor who wants transmission by operation of law needs to file a simple application with the company. Relevant documents such as Death certificate, succession Certificate, probate, etc. need to be attached to the application.
  • Thereafter, the company records the information about the death certificate, and a reference number of recording is given to the shareholder.
  • After the documents are submitted, the company reviews these documents and approve the transmission request in case the documents are in order.
  • In case the documents submitted with the transmission request are not in order, the company shall communicate refusal to the concerned person within 30 days.
  • Before the death of the shareholder, the dividend declared will be payable to the legal representative, and in case after the death of the shareholder, the dividend will be paid to him only after the registration of his/her name.
  • Implementation of transfer deed is not mandatory for transmission of shares. Application of transmission together with appropriate documents shall be sufficient the request of valid transmission.

Probate : If a member of a company leaves after him a letter of administration or a will then after his death the survivors shall get a copy of ‘will’ which is certified with the competent Court’s of jurisdiction seal. Thus, this will’s certified copy is called a ‘probate’. There is no requirement of Succession certificate when letter of administration and probate is issued.

What are the differences between Transfer of Shares and Transmission of Shares?

Transfer of Shares and Transmission of Shares are often taken in a similar way but there is difference between these two terms. Let’s see the Comparison Chart:

Comparison Basis Transfer of Shares Transmission of Shares
Definition Transfer of share voluntarily from one party to another. Transmission of shares takes place by the operation of law in case the member of the company is not alive or has become insolvent.
Reason for the transfer or transmission It’s a voluntary decision of the member of the company. In case if insolvency, death or inheritance of the member.
Initiated by Transferor or Transferee Legal heir or receiver
Liability The liabilities of transferor cease on the completion of transfer. Original liability of shares continues to exist.

Conclusion

Transfer and transmission of Securities are two different things that are often confused by the non-technical people. These are the ordinary course of transferring property, but in the transmission of shares take place in case the member of the company is not alive or has become insolvent. Moreover, the transfer of shares is more common than the transmission of shares.

Read our article:MOA and AOA: Why They Are Vital To Setup an Institution

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Shalini Singh

Shalini is a B.tech graduate but her keen interest in writing impelled her to continue as a content writer. Further, She has a rich experience in Companies Act and Ammendment related topics.

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