Sunday, May 11, 2014

Transfer and Transmission of Shares

Transferability of shares is an absolute right of the shareholder which cannot be denied even by the articles. Section 82 empowers every shareholder to transfer his shares in the manner laid down in the articles and in accordance with the various provisions of the law.

Transfer of share in Private Company: A private company is statutorily under obligation to place certain restrictions on the right of its members to transfer shares. One of the restrictions on transfer of shares in a private company is the “Pre-emption Clause” which states that the transferor must offer his shares to the existing members of the company, before offering them to non-members, so long as a member is willing to purchase them at a fair price to be determined in accordance with the articles.

Transfer of shares in Public Company: In the case of public company also, there are some restrictions on the right of members to transfer shares. Regulation 21(Table A) provides that the board of directors may refuse to register the transfer to partly paid shares to a person of whom they do not approve. The board of directors may also refuse to register the transfer of any shares on which the company has a lien.

Provisions regarding transfer of shares are:
1.       It should be in accordance with the articles
2.       The transfer deed to be presented before the registrar for the notification of date on the blank form
3.       Form should be duly filled up as per form 7B.
4.       It should be duly stamped.
5.       And after this share certificate is to be attached and then sent to the company.
Time required within which the transfer must be registered:
1.       In case where the shares are dealt in stock exchange, 12 months from the date mentioned in the deed or before the closure of the register whichever is later.
2.       In any other case within 2 months from the date specified in the deed. Time period for the registration can be extended with the help of Form 7C by applying to the register.
Notice of refusal: Where a company refuses to register the transfer, whether in pursuance of any power of the company under its articles or otherwise, it shall within two months send notice of refusal to the transferee and the transferor giving reason for such refusal.

Blank Transfer and Forged Transfer

Blank Transfer: When a share transfer form is signed by the shareholder without filing in the name of the transferee and date of transfer and hands it over along with share certificate to the transferee thereby enabling him to deal with shares, it is called a transfer in ‘Blank’ or ‘Blank Transfer’. The ownership of shares in a company is generally transferred from one person to another by producing of a document from the seller to the buyer. This document is described as a ‘transfer instrument’ or ‘transfer deed’ or merely ‘transfer’. Because of the convenience associated with the blank transfer, the shares are usually sold and produced through blank transfer. Blank transfer results in saving of stamp duty. It is to be affixed only by the last transferee who lodges the shares with the company for the purpose of registration of transfer. The title of the transferee acquiring shares through a blank transfer shall invariably by subject to the title of the transferor.

A transfer in blank, when accompanied by a share certificate, brings to the transferee both the legal and equitable rights to the shares and also the rights to call upon the company to register the transfer.
Forged Transfer: An instrument on which the signature of the transferor is forged is called forged transfer. It is a null transfer and does not confer any title. It is so because in case of forgery there is not merely an absence of free consent but there is no consent at all. Hence, this transfer will never confer an ownership upon the transferee, however important the transaction may appear it. If the company registers any forged transfer, the real owner can apply to the company for the rectification and get his name placed back in the register.

Rights of the aggrieved party against refusal to transfer the shares:
1.       Right to make an appeal to the company law board: The transferor or the transferee has the right to make an appeal to the Company Law Board against any refusal by the company to register the transfer or against any failure on its part within two months of the receipt of the notice of such refusal. Or where no notice has been sent by the company, within four months from the date on which the instrument of transfer was delivered to the company.
2.       Right to apply to the Company Law Board for rectification of the register: The person aggrieved or any member of the company may apply to the CLB for rectification of the register if the name in register of member without any sufficient cause or default is made or unnecessary delay take place in entering in the register the fact of any person having become or erased to be a member.

Certification of Transfer
Where a shareholder desires to transfer only some of the shares represented by a share certificate or desires to sell the shares to different person then the transferor is required to hand over the share certificate to be lodged along with the share transfer from the company. Where the transferor has already lodged with the company the required share certificate, along with an instrument if transfer for part of the shares, he may request the company to certify on the instrument of the transfer, that the share certificate for the shares covered by the instrument of transfer has been lodged with the company. This is called as certification.
According to section 112(3) (a) an instrument of transfer shall be deemed to be certificate, if it possess the word ‘Certificate lodged’ or the words to the same effect. Therefore, certification is the act of noting by the secretary etc. specifying that the share certificate has been lodged with the company.
When the transferor transfers only a portion of his shares, the company usually issues him tickets for the balance of shares which have not been transferred. These tickets are called “Balance Ticket”.
Section 112 provides that certification is simply a representation by a company to any person acting on the faith of it that there has been a prima facie title in the transfer.

The company will be liable for the certification only if:-
(i)      The instrument of transfer is certified with the words ‘Certificate Lodged’ or words to the same effect.
(ii)    An authorized person issues the certification instrument on behalf of the company.
(iii)   The certificate is signed by any officer or servant of the company or any other person authorized to certify transfer on the company’s behalf.

Transmission of shares
When the shares are transferred under the operation of law it is called transmission of shares. Transmission of shares takes place:-
(i)      When the registered shareholder dies.
(ii)    When he is declared insolvent.
(iii)   In case where the shareholder is the company, it goes into liquidation.

In case of the death of registered shareholders, his legal representative becomes the care taker of the shares. The legal representative if he can sells the shares without being registered, if he does not want to become the member of the company. In case he wants to become the member of the company, he should send a written and signed notice to the company disclosing his decision.

In case of the insolvency, the official assigner has the power to take the decision regarding selling of the shares, transferring of the shares or getting himself registered as a member.

In case where a shareholding company goes into liquidation then the liquidator of the company may sell and transfer the shares.

Difference between transfer of shares and transmission of shares
Transfer of shares
Transmission of shares
Transfer of shares takes place by a voluntary a deliberate act if the transferor.
Transmission is the result of the operation of law.
Instrument used
In case of transfer, the transferor and transferee have to execute an instrument of transfer
The shares are transmitted on the death insolvency of member and instrument of transfer is not required only a proof of his title to the shares is required.
Transfer is the normal method of transferring property in the shares
Transmission of share takes place only on the death or insolvency or liquidation.
Stamp duty
In case of transfer stamp duty is payable on the amount of the market value of shares
No stamp duty is payable in case of transmission.