Table of Contents
Introduction
The transmission of physical shares after the passing of a shareholder represents a pivotal moment of transition in the intricate web of estate management. Losing a loved one is never easy, and dealing with the administrative aspects of their estate can add further complexity during such a challenging time. It is a process that demands meticulous attention to detail and adherence to regulatory protocols.
Being from the field of finance and providing investment and insurance services, I am often asked about the process of transfer of shares held by the deceased shareholder in physical form to the legal heirs. As we embark on this journey, let us explore the steps and nuances involved in ensuring a seamless transfer of ownership in honour of the departed shareholder’s legacy.
What is Transmission of Physical Shares
The Companies Act distinguishes the transfer of shares from the transmission of shares. While the transfer of shares relates to a voluntary act of the shareholder, transmission is brought about by the 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 (transfer deed) duly stamped and executed, transmission of shares is done through documents such as a will, nominations, succession certificates etc.
Is Dematerialization mandatory
There is also a general concern about ban on transfer of physical shares (without dematerializing) with reference to the status of inherited shares. However, The SEBI order of 2019 only bars transfer of physical shares (without dematerializing) and transmission of physical shares is still permitted.
However, the demise of a shareholder holding shares in physical form does create some immediate challenges. One can get over these challenges by adopting a methodical approach. In India, the Securities and Exchange Board of India (SEBI) has laid down guidelines to streamline the process of transmission of shares and ensure a smooth transition of share ownership. Let’s delve into the procedure for transferring shares after the death of a shareholder in physical form, as per SEBI guidelines:
Nomination Cases
In cases where the deceased held a valid nomination for the shares, the process becomes quite simple. The nominee needs to file an application for the transmission of shares with the concerned registrar. The application must be accompanied by a proof of nomination in the nominee’s favour and also a copy of the death certificate of the original shareholder and identification documents of the nominee. After verification of these documents by the registrars of the companies where shares are held, transmission of shares will be executed in the name of the nominee.
Holding of Shares by Nominee
Once the physical shares get registered in the name of the nominee, he/she has a choice to either hold it in physical form or dematerialize these shares and hold the dematerialized shares in his/her demat account. Though there is no embargo on holding the shares in physical form, the dematerialization is mandatory for selling the shares in the stock exchanges. SEBI is advocating holding of shares in dematerialized form and with valid nominations by all the shareholders and it will soon become mandatory for everyone to hold the shares in demat form only. The dematerialization can be done at the time of transfer itself through a simple method of opting for transmission-cum-demat or TCD where dematerialization happens along with transmission itself.
What needs to be kept in mind is that the nominated name and the name in the demat account are the same. In cases where a deceased shareholder may have made multiple nominations, the transmission of physical shares will happen into a joint demat account with all the nominees as account holders, and the shareholders then can transfer their share of the inheritance from the joint account to their respective demat account.
No Nomination cases
Shares Held Jointly
If the shareholdings are in joint name, then the shares automatically vest on the co-owner. This is quite simple process and just requires an application from the surviving shareholder to the registrar with a copy of the death certificate.
Single Holder
If the shareholding is in a single name and the shareholder dies without nomination or will, this could make the process complex and long winding. In the absence of a nomination, the transmission of physical shares will happen under SEBI Listing Obligation and Disclosure Regulations (LODR).
The following steps need to be followed.
Obtain Probate or Succession Certificate
- The first step in the transmission of physical shares after the death of a shareholder is to obtain a probate (when there is a will) or a succession certificate (when there is no will). This legal document certifies the authenticity of the deceased’s will or establishes the rightful heirs in case of intestate succession.
- The next step is to inform the company through the registrar and transfer agent, in which the shares are held about the shareholder’s demise. This can usually be done by submitting a letter along with a copy of the death certificate and the probate or succession certificate.
- The company will provide the necessary forms for the transmission of physical shares. These forms typically include the share transfer deed, transmission request form, and indemnity bond.
Role of Registrar and Transfer Agent (RTA)
- The executor or legal heir must complete the share transmission deed by filling in details such as the name of the deceased shareholder, details of the transferee (the person to whom the shares are being transferred), and the number of shares being transferred and submit the documents to Registrar and Transfer Agent (RTA).
Verification and Issuance of updated Share Certificates
- Verification and Processing: The RTA will verify the documents submitted and process the transmission request. This may involve conducting due diligence to ensure compliance with SEBI regulations and company policies.
- Issuance of Updated Share Certificates: Once the transmission is approved, the company will cancel the existing share certificates in the name of the deceased shareholder and issue new share certificates in the name of the transferee and update its shareholder records to reflect the transfer of shares and the new ownership details.
Thumb Rules
The above process will ensure that the inherited shares get transmitted in the name of legal heirs, and the person entitled to the transmission of shares becomes the shareholder of the company and is entitled to all rights and subject to all liabilities as such a shareholder. However, it brings out four basic rules we should follow:
- Always ensure that holdings are dematerialized rather than holding the shares in physical form, even if you do not intend to sell the shares immediately.
- The importance of nominations can not be understated. Of course, SEBI is making all efforts and making it mandatory to have nominations in demat accounts. Yet keeping it updated is very important to ensure a smooth transmission process for our legal heirs.
- Probate of will is always advisable to avoid legal disputes in the future, especially in case of large value holdings.
- Let all the details like holding, will, nomination etc be documented, registered and easily accessible to legal heirs.
Conclusion
The timeline for processing the requests for the transmission of physical shares held in physical mode is 21 days after receipt of the prescribed documents. In case the deceased shareholder had holdings in different companies, then to effect transmission of physical shares of all the different companies, the relevant documents must be sent to each of the companies/registrar and transferring agent, along with the share certificates.
In conclusion, navigating the process of transmission of physical shares after the demise of a shareholder may seem daunting, but with the proper guidance and adherence to SEBI guidelines, it can be managed efficiently. By obtaining the necessary legal documents, communicating with the company, and submitting the required forms to the registrar and transfer agent, the transfer of shares can be successfully facilitated. It’s essential to approach the process with patience, attention to detail, and a clear understanding of the regulatory requirements to ensure a smooth transmission of physical shares and an encrumberance-free ownership. With diligence and perseverance, the rightful heirs can honour the legacy of the deceased shareholders and manage their assets responsibly.
Seeking assistance from legal or financial professionals experienced in handling estate matters can help navigate the process smoothly.
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