What is the legal procedure for transfer and transmission of company shares?

Question

One of our shareholders wants to sell shares to an outsider, and separately a shareholder passed away leaving shares to a legal heir. What is the correct process for each? Specifically, I want to know how Companies Act 2013, Section 56 applies to a situation like mine and what the corporate law position in India actually is. If there is a deadline I should be aware of, I need to know that now.

MyVakeel Legal Desk · Accepted Answer

What is the legal procedure for transfer and transmission of company shares? is governed in India primarily by Companies Act 2013, Section 56, Companies Act 2013, Section 58 and Indian Succession Act 1925, Section 214. Outcomes in share transfer section 56 disputes depend heavily on documentation, so check what you can actually evidence as you read.

Section 56 requires a proper instrument of transfer in Form SH-4, duly stamped and executed by both transferor and transferee, to be delivered to the company for registering a transfer of shares.

Transmission of shares, unlike transfer, occurs by operation of law on death, insolvency or lunacy of a shareholder, and the company registers it based on a succession certificate, probate or letter of administration under Section 214 of the Indian Succession Act.

Section 58 allows a private company's articles to restrict transfer of shares, and the board can refuse to register a transfer for reasons recorded in writing within 30 days, subject to appeal before the Tribunal.

For transmission, the company generally does not insist on a fresh transfer deed since the legal heir or representative steps into the shareholder's shoes automatically upon proof of entitlement.

Both transfer and transmission must be reflected in the register of members promptly, and the company must issue updated share certificates within one month of registering the change.

What to do next: 1) Execute Form SH-4 with proper stamp duty for a share transfer; 2) Submit succession certificate, probate or heirship proof for transmission cases; 3) Place the transfer or transmission request before the board for approval; 4) Update the register of members and issue fresh share certificates within one month.

If you are unsure whether your facts fall inside Companies Act 2013, Section 56, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.