The transmission of shares is a sensitive and essential legal process that often arises after the death of a shareholder. When not handled carefully, even a small mistake can delay the procedure or create legal complications for both the heirs and the company. Whether you're a legal heir, a company secretary, or part of a corporate compliance team, understanding the common errors during the share transmission process can help you avoid unnecessary trouble.
In this blog, we will walk you through the most frequent mistakes individuals and companies make during the transmission of shares. We will also share practical tips to make the process smoother and compliant with regulatory norms, especially those set by SEBI.
Not Understanding the Transmission of Shares Properly
One of the biggest errors people make is confusing the transmission of shares with the transfer of shares. Transmission happens by law due to events like death, insolvency, or bankruptcy of a shareholder. It is not a voluntary action like a sale or gift of shares. Mistaking one for the other may lead to submitting the wrong forms or initiating the wrong process, which can lead to delays and rejections.
Missing or Incomplete Documentation
Incomplete paperwork is one of the most common reasons for delays in the Transmission of Shares procedure. Legal heirs or claimants often forget to submit one or more of the following essential documents:
- Death Certificate of the shareholder
- Succession Certificate or Probate (if there is no nominee)
- Duly filled Transmission Request Form (TRF)
- Self-attested PAN card and identity/address proofs of the claimant
- Original share certificates
Companies cannot proceed with the transmission of shares unless the documentation is complete. It is crucial to prepare a checklist and cross-check every document before submission.
Ignoring SEBI Guidelines
The Transmission of Shares SEBI regulations must be strictly followed. SEBI has laid down clear guidelines, especially for listed companies, on the timelines and documentation involved. If these norms are not followed, it may result in penalties, legal issues, or rejection of the claim. Many people skip reading the SEBI circulars or rely solely on word-of-mouth advice, which often leads to non-compliance.
For example, as per SEBI's latest circulars, if the value of shares is up to ₹5 lakhs per issuer, a simplified procedure can be followed with minimum documentation. Not being aware of this can lead to unnecessary legal formalities.
Failing to Nominate in Advance
Another mistake that creates trouble later is not adding a nominee when the shares are first issued or bought. If there is no nominee, the legal heir will need to provide additional documents like a succession certificate, which not only delays the transmission of shares but also adds legal costs.
Companies should regularly remind shareholders to add or update their nominee details to avoid complications in the future.
Delays in Intimating the Company
Once the shareholder has passed away, the legal heir or family should inform the company immediately. Delaying this notification increases the risk of fraud or misuse, especially if the shares are in physical form. Prompt communication helps in freezing the shares and beginning the transmission of shares procedure without delay.
Errors in Shareholder Records
Sometimes, mistakes in the original shareholder records can delay or block the transmission. For example, if the PAN card name does not match the shareholder's records, or if the nominee's name is misspelled, the process may come to a halt.
Always make sure that the shareholder's KYC is updated and consistent with legal documents. It's wise to do regular KYC audits in companies that deal with a large number of shareholders.
Misplacing the Original Share Certificate
If the physical share certificate is lost or damaged, the company cannot proceed unless a duplicate is issued. However, people often don't know how to handle the loss of share certificate or the duplicate share certificate procedure.
To apply for a duplicate, you usually need to:
- File a police complaint and obtain a FIR
- Publish a notice in a national and local newspaper
- Submit an indemnity bond and affidavit
- Pay the required fee to the company or registrar
Skipping any of these steps or not following the proper Issue of Duplicate Share Certificate process will result in unnecessary delays.
Not Following the Internal Procedure of the Company
Each company may have its own internal rules and procedures in addition to what is required by law. Not checking the company's specific requirements for the transmission of shares procedure can result in rejection of the application.
It's advisable to visit the company's website or speak with their company secretary or compliance officer before submitting the documents.
Overlooking Tax Implications
While the transmission of shares is not considered a “transfer” and hence does not attract capital gains tax, legal heirs may have to deal with tax-related issues later, especially when selling the shares. Not being aware of this can cause confusion at the time of filing income tax returns.
Consulting a tax advisor beforehand can help avoid issues later during assessment or audits.
Assuming Demat and Physical Share Transmission is the Same
Transmission of shares in demat form is handled by the depository participant (DP), while physical shares are handled by the company or its registrar. The process, forms, and timeline differ slightly.
Not knowing which authority to approach depending on whether shares are held in physical or demat form is a common mistake.
Final Thoughts
The transmission of shares is a process governed by clear legal and regulatory guidelines. Even though it is a routine matter for companies, it can become challenging for heirs or representatives if not done correctly. Avoiding the mistakes listed above will save you time, stress, and unnecessary legal expenses. It's always wise to seek professional advice or legal support, especially when dealing with high-value shares or complex family structures.
FAQs
- What is the difference between transmission and transfer of shares?
Transmission of shares occurs by operation of law, usually due to the death or insolvency of the shareholder. Transfer of shares is a voluntary act where a shareholder sells or gifts the shares to another party.
- What should I do if the original share certificate is lost?
In case of loss of share certificate, you need to follow the duplicate share certificate procedure, which includes filing a police report, publishing a notice in the newspaper, and submitting an indemnity bond along with a request to the company.
- Is a nominee enough to complete the transmission of shares?
Yes, if a nominee is registered with the company or depository, the transmission of shares procedure is quicker and simpler. If no nominee exists, legal heirs must provide a succession certificate or probate to complete the process.
