What does Transmission of shares mean? in Physical Shares

While the transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by operation of law. The word ‘transmission’ means devolution of title to shares otherwise than by transfer, for example, devolution by death, succession, inheritance, bankruptcy, marriage, etc.

While the transfer of shares is brought about by delivery of a proper instrument of transfer (viz, transfer deed) duly stamped and executed, transmission of shares is done by forwarding the necessary documents (such as a notarized copy of death certificate) to the company.

On registration of the transmission of shares, the person entitled to transmission of shares becomes the shareholder of the company and is entitled to all rights and subject to all liabilities as such shareholder.

When Does Transmission of Shares Take Place

• The deceased’s account has no holdings and no funds
• A joint account holder exists
• The account holder has appointed a nominee
• The account holder has not added a nominee to their account but has holdings.

• -Holding value less than 5lakhs
• -Holding value more than 5lakhs

Each scenario has different procedures that need to be followed.

• Transmission of shares is a process by operation of law where under the Shares are registered in a Company in the name of deceased person or an insolvent person are registered in the name of his legal heirs by the Company on proof of death or insolvency as the case may be.
• Article of the Company usually provide the provisions of Transmission of shares. In absence of such provisions, Company will follow Regulations 23 to 27 of Table F to govern the provision of Transmission of shares.
• Transmission of shares takes place when registered member dies or is adjudicated insolvent or lunatic by competent court.
• As per the above regulations, legal representatives are entitled to the shares held by the deceased person and company must accept the evidence of Succession.

Essential Aspects of Transmission of Shares:

1. Generally, the provisions of transmission of shares are provided in the Articles of Association (AoA) of the Company. In absence of such provisions, the Company would then follow regulations 23 to 27 of Table F of Companies Act, 2013.
2. As per the governing regulations, legal representatives are entitled to the shares held by such registered members and the Company must accept the evidence of succession.
3. Succession Certificate or Letter of Administration or Probate or Evidence acquired by the Board of Directors can be accepted as evidence of succession. If the succession certificates have been granted in respect of shares, the Company should not insist on providing probate or letter of administration.
4. The legal heirs/representatives are the legal owners of the shares and are entitled to get dividends and other advantages to which they would be entitled if they were the registered holders of the Shares. However, they would not be entitled to exercise voting rights or other rights in a general meeting unless they have registered themselves as a member in respect of the Shares. They may apply to be registered members of the Company.
5. Legal heirs are also allowed to transfer the shares as likely as the deceased or insolvent member would have done.
6. Since it is a process by operation of law, shares are transmitted to legal heirs without any consideration and thus do not attract any stamp duty.
7. There is no necessity to have an instrument of Transfer (‘Deed’) executed for the purpose of transmission of shares.
8. Shares would continue to be subject to the original liabilities, even in case of their transmission. For an instance, if some lien existed on the shares for any sum due, on their transmission such lien would subsist.

Transmission in Case of Small Shareholding:

The Company may affect transmission without obtaining a succession certificate. However, the Board shall ensure that sufficient evidence is produced by the legal heirs.

Introduction

Most of the private limited companies are closely held with the limited number of members, or sometimes having only family members as shareholders of the company and therefore the company prefers to issue share certificates in physical form. A share certificate is a legal document that certifies the legal ownership of a specific number of shares held in a company. What if this share certificate is lost or misplaced? Does the Companies Act, 2013 provide for the issue of duplicate share certificates?

Well, Section 46(2) of the Companies Act, 2013 read with Rule 6 of the Companies (Share Capital and Debentures) Rules, 2014 provides the procedure for issuing duplicate share certificates to a shareholder in case his share certificate(s) is lost or misplaced.

In this article, we will analyse the procedure to be followed for issue of duplicate share certificates by a private limited company and what steps a shareholder must take in case his share certificate(s) is lost or misplaced.

What is a duplicate share certificate?
A duplicate share certificate means a certificate issued in lieu of original share certificate when such original share certificate is reported to be lost by a member along with proper evidence or is surrendered to the company if the same is defaced, mutilated or torn out.
When a Duplicate Share Certificate is issued?
As per Section 46(2), a duplicate share certificate can be issued if the same is

Proved to have been lost or destroyed or
Has been defaced, mutilated or torn out and is surrendered to the company.
Here we are considering the first case i.e. issue of duplicate share certificate when such certificate is Proved to have been lost or destroyed.

How to apply for a duplicate share certificate in case it is lost or misplaced?

Unless Articles of Associate of the Company provides any procedure for application and issue of duplicate share certificate, the company shall issue duplicate share certificate as per the provisions of Section 46(2) read with Rule 6 of the Companies (Share Capital and Debentures) Rules, 2014.
Legal Provision: As per Rule 6(2)(a) to (c) of the Companies (Share Capital and Debentures) Rules, 2014, The duplicate share certificate shall be not issued in lieu of those that are lost or destroyed, without the prior consent of the Board and without payment of such fees as the Board thinks fit, not exceeding rupees fifty per certificate and on such reasonable terms, such as furnishing supporting evidence and indemnity and the payment of out-of-pocket expenses incurred by the company in investigating the evidence produced.

Is Public Notice in Newspaper for issuing duplicate share certificate(s) is mandatory for private limited companies?

Most of the private limited companies are closely held. The Board is authorised to approve request for the issue of duplicate share certificates. If the intention is not bad then the Board may consider to issue duplicate share certificate(s) without public advertisement. But in case of public limited companies and listed companies issuing public notice in newspaper is a must and the cost of such advertisement shall be borne by the shareholder.

Who is authorised to issue a Duplicate Share certificate?

A request for issue of duplicate share certificate shall be made to the Board of Directors along with proper documents and evidence. The Board by passing a resolution shall approve the issue of duplicate share certificate. Post approval by the Board, company secretary if the company has any, or any other person authorised by the board shall issue duplicate share certificate(s) to the shareholder.

Who shall sign a duplicate share certificate?

Such certificate shall be issued under the common seal of the company, if any or signed by two directors or by a director and the company secretary if the company has so appointed.

Time Limit to Issue Duplicate certificate

The company shall issue Duplicate share certificates within a period of 3 months from the date of submission of complete documents by the shareholder to the company. The Board shall approve the issue of duplicate share certificate to the shareholder via a board resolution.

Share Certificate Number in case of Duplicate Share Certificate

Share certificate number shall be the next consecutive number after the certificate last issued, as per the counter folio of the share certificate Book. The new share certificate will be issued in lieu of original share certificate and therefore on the face of share certificate, words “Duplicate issued in lieu of share certificate No.__” should be mentioned.

What should be the Date on Duplicate share certificate?

The time limit as specified under Rule 6(2)(c) of the Companies (Share Capital and Debenture) Rules, 2014 to issue duplicate share certificate(s) in case of unlisted companies is within 3 months from the date of submission of complete documents to the company. Also, the Board of Directors must approve the issue of duplicate share certificate(s) to the shareholder via a Board Rsposultion.

Therefore considering all above, the date of issue of duplicate share certificate should be the date of Board Meeting in which the request for issue of duplicate share certificate is accepted/approved by the Board, and such date should be within 3 months from the date of submission of complete documents to the company.

Whether stamp duty is applicable on duplicate share certificate?

Yes, stamp duty on duplicate share certificate is applicable and shall be paid in accordance with the duty provided in the stamp laws of respective states.

In case of issue, transfer or sale of securities, if the stamp duty is paid on the principal instrument, then no stamp duty is required to be charged on any other instrument relating to such transaction. Issuing duplicate share certificate is neither a case of issue or transfer or sale of security, therefore stamp duty is applicable on duplicate share certificates.

It is also important to note that stamp duty shall be paid as per the state where the registered office of the company is situated irrespective of the place where the board meeting for approval is held.

Penalty for Intention to Defraud

If a company with the intent to defraud issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than five times the face value of the shares involved in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten crores whichever is higher and every officer of the company who is in default shall be liable for action under section 447.