Unit -2

Transfer and Transmission of shares

One of the most important features of the securities is that they are transferable,
which facilitates the company in acquiring permanent capital and liquid
investments to the shareholders. Transfer of shares is a voluntary act of a member
that takes place by way of contract. It is not exactly same as transmission of shares,
as the two differ in their meaning and concept as well. The transmission of shares
occurs due to the operation of law i.e. in case if the member passes away or
becomes insolvent/lunatic.
Transfer is by the act of the parties. Transmission is by devolution of law, i.e. death
or bankruptcy. In transmission of shares no procedures are required to be followed
unlike in transfer of shares.

Difference Between Share Transfer and Share Transmission

The act of movement of an asset is termed as a transfer. The movement can be
physical movement or the ownership of the title of the asset or both. For securities,
this movement can be voluntary or operational by law. The transfer of shares is a
voluntary act by the holder of shares and takes place by way of contract. Whereas,
the transmission of shares takes place due to the operation of law that is on the
death of the holder of shares or in an event where the holder becomes
insolvent/lunatic.
Meaning of Transfer of Shares
Transfer of shares refers to the intentional transfer of title of the shares between the
transferor (one who transfers) and the transferee (one who receives). The shares of
a public company are freely transferable unless the company has a valid reason to
disallow the same. The shares of a private limited company are not transferable
subject to certain exceptions. A transfer deed is executed for the transfer of shares.
Meaning of Transmission of Shares
Transmission of shares takes place due to the operation of law that is when the
holder is no more or has become lunatic or insolvent. It can also take place when
the holder of shares is a company, and it has wound up. There is no transfer deed
executed, and the transferee will be given the rights to the shares, and the
transmission is recorded only when the transferee gives proof of entitlement to the
shares. In case of the death of the holder the shares, it will be transferred to the
legal representative and in case of insolvency to the official assignee. The
following table illustrates the differences between the transfer of shares and
transmission of shares:

Details Transfer of Shares Transmission of Shares

What is it? Voluntary Act Operational by law

Who can initiate? Transferor or Transferee Legal heir or receiver

Insolency, lunacy, death, or

How is it affected? A deliberate act of parties
inheritance

Is there a Yes No
 consideration?

Is a transfer deed
Yes No
compulsory?

Is stamp duty Yes. Payable on the

No
compulsory? market value of shares 

Liability of transferor
Original liability of shares
Who is liable? ceases to exist post the
continues to exist
transfer

Provisions Under Companies Act, 2013 and Companies (Share Capital &
Debenture) Rules, 2014
As per Section 56 of the Companies Act, 2013 read with Rule 11 of Companies
(Share Capital & Debenture) Rules, 2014
Transfer of shares
It will be affected only if a proper instrument of transfer, in Form SH -4, as given
in sub-rule 1 of Rule 11 of Companies (Share Capital & Debenture) Rules 2014
duly stamped, dated, and is executed by or on behalf of the transferor and the
transferee and specifies all the details like name, address, occupation if any of the
transferee. It has to be delivered to the company by either parties within 60 days
from the date of execution along with a certificate of securities or letter of
allotment of securities as available. If the transferor makes an application for the
transfer of partly paid shares, then the company gives notice of the application
Form SH-5 as given in sub-rule 3 of Rule 11 of Companies (Share Capital &
Debentures) Rules 2014, to the transferee and the transferee must give no objection
to the transfer within 2 weeks from the receipt of the notice.
Transmission of shares
It will be affected when the application of transmission of shares along with
relevant documents is valid. Execution of transfer deed is not required. The
following are the relevant documents for the transmission of shares
Certified Copy of Death Certificate
Self Attested Copy of PAN
Succession certificate/ Probate of Will/Will/ Letter of Administration/ Court
Decree
Specimen signature of successor
Time limit for delivery of a certificate in both cases
Every company must deliver the certificates of all securities transferred or
transmitted within 1 month from the date of receipt of the instrument of transfer in
case of transfer or intimation of transmission as applicable unless prohibited by
any provision of law or any order of Court, Tribunal, or other authority.
Penalty in case of non-compliance
Where any default is made in complying with the above, the company shall be
punishable with a fine not be less than Rs. 25,000 but which may extend to Rs.
5,00,000, and every officer of the company who is in default shall be punishable
with a fine not be less than Rs.10,000 but which may extend to Rs.1,00,000. While
the transfer of shares and transmission of shares intend a change in ownership of
the title of the shares, the distinction lies in the fact that the transfer of shares is
voluntary and initiated by the transferee or transferor while transmission of shares
is operational by law and is initiated by the legal representative or receiver.
Comparison Chart
BASIS FOR TRANSMISSION OF
TRANSFER OF SHARES
COMPARISON SHARES
Meaning Transfer of shares refers to the Transmission of shares means
transfer of title to shares, the transfer of title to shares by
voluntarily, by one party to the operation of law.
another.
Affected by Deliberate act of parties. Insolvency, death, inheritance or
lunacy of the member.
Initiated by Transferor and transferee Legal heir or receiver
Consideration Adequate consideration must No consideration is paid.
be there.
Execution of valid Yes No
transfer deed
Liability Liabilities of transferor cease Original liability of shares
on the completion of transfer. continues to exist.
Stamp duty Payable on the market value of No need to pay.
shares.

The significant differences between transfer and transmission of shares are

provided below:

1. When the shares are transferred by one party to another party, voluntarily, it
is known as transfer of shares. When the transfer of shares happens due to
the operation of law, it is referred to as transmission of shares.
2. Transfer of shares is done intentionally whereas death, bankruptcy and
lunacy are the reasons for transmission of shares.
3. The transfer of shares is initiated by the parties to transfer, i.e. transferor and
transferee. Unlike transmission of shares which is initiated by the legal
representative of the concerned member.
 4. Transferee pays an adequate consideration to the transferor for the transfer
of shares. In the case of transmission of shares, no consideration shall be
paid.
5. Execution of valid transfer deed is necessary when there is the transfer of
shares, but not in the transmission of shares.
6. When the transfer is completed, the liability of the transferor is over. On the
other hand, the original liability of shares exists.
7. Stamp duty is payable on the market value of shares in case of transfer while
in the transmission of shares no stamp duty is to be paid.

Conclusion

By and larger, transfer of shares is the normal course of transferring property,

while the transmission of shares takes place only on demise or insolvency of the
shareholder. Moreover, Transfer of shares is very common, but the transmission of
shares takes place only on the happening of the certain event.