What is Transmission of Shares? Distinguish between Transfer and Transmission of Shares.

Transmission of Shares: 

Transmission of shares means transfer of shares on account of operation of law. Transmission of shares takes place in case of death, insanity or insolvency of a member or, where the member is a company, on its liquidation. The effect of the transmission is that the legal representative, administrator or the official assignee or receiver, as the case may be, shall be entitled to the shares.

A person who receives shares through transmission has two options before him,

  • To get himself registered as a member or
  • To transfer the shares.

If he chooses to become a member, he has to make an application to the company for transfer of shares in his name. The application must accompany probate, succession certificate, letter of administration, certificate of death etc.

If the legal representative decides to sell the shares, he can do so as if he had been the holder at the time of the execution of the instrument of transfer. He is also entitled to dividends declared by the company, but he can not vote at the meetings of the company. However, if the company’s Articles permit, the directors may withhold payment of dividend, bonus etc., to compel a legal representative to exercise either of the two options available to him.

A company can refuse to register a transmission if there is a provision to that effect in the Articles. But the power must be exercised by the directors in good faith. The aggrieved party can appeal to the Tribunal for relief.

Distinction between Transfer and Transmission of Shares:

Transfer of Shares

  • Nature of Act: Transfer takes place by a voluntary and deliberate act of the transferor.
  • Instrument of Transfer: Instrument of transfer’ has to be executed by both transferor and transferee in case of transfer. Only under Demat system, instrument of  transfer is not required.
  • Consideration: Shares are normally transferred to another person for some consideration.
  • Stamp Duty: In case of transfer of shares through an instrument of transfer, stamp duty is payable on the market value of the shares.

Transmission of Shares

  • Nature of Act: Transmission  is  an involuntary act and is the  result of operation of law.
  • Instrument of Transfer: Instrument of transfer is not required, only a proof of title to the shares of the person is required.
  • Consideration: Shares pass to another person without consideration.
  • Stamp Duty: No  stamp duty  is payable  in case  of transmission of shares.
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