Knowledge Center

Oct 27

Posted by:MyEfilings
Transfer and Transmission of Shares

Let us first try and understand what a share is. When the capital of the company is divided into various units which have a specified and definite value, it is then termed as a share.

Shares are properties that are movable by nature.

It is a unit of ownership which represents an equal proportion of a company’s capital. It promises and entitles its holder i.e., the shareholder to an equal claim on its company’s profits and at the same time, an equal obligation for the company’s debts and losses.

When establishing a corporation, owners may choose to issue common stock or preferred stock, and so, there are two major types of shares and they are as follows:

  1.  Ordinary Share (Common Stock) – This type of share entitles its shareholders to share in the earnings of the company as and when they occur, and they also get the right to vote at the company’s annual general meetings as well as other official meetings
  2. Preference Share (Preferred Stock) – This type of share is entitled to give its shareholder a fixed amount of income (interest), for a particular period of time. The shareholders of these kind of shares do not get a voting right as such.

Most companies are known to issue common stock. The stock has a chance to benefit shareholders through appreciation, interest and dividends, making common stock riskier than preferred stock. Since Common stock also comes with voting rights, it gives its shareholders more control over the business. Moreover, certain common stock comes with pre-emptive rights, making sure that shareholder may buy new shares and retain their percentage of ownership when the corporation comes up with an issue of new shares in the market.

On the other hand, preferred stock does not offer appreciation in value or voting rights in the corporation. However, the stock typically has a solid or set payment criterion; which is in the form of a dividend that is paid out regularly, making the stock less risky, when compared to common stock.

Talking about shares, they can either be transferred or a transmission of the same can take place.

Transfer of shares usually refers to the intentional transfer or in simpler terms, give away of the title (rights as well as duties) to shares by one person to another. There are only two parties in the business of transfer of shares, i.e. the transferor and the transferee.

The shares of the public company happen to be freely transferable unless there is an express restriction provided in the articles of association. However, the company has a right to refuse the transfer of shares, if it has a valid reason for doing so. In the case of a private company, there is a restriction on the transfer of shares subject to certain exceptions provided in the beginning itself.

On the other hand, there are some cases when the transfer of shares occurs due to the operation or by the practice of law, i.e. when the registered shareholder is no more, or when he is insolvent or if he is a lunatic. Transmission of shares may also occur when the shares are held by a company, and it is wound up.

In the above mentioned cases, the shares are then transferred to the legal representative of the deceased and the official assignee of the insolvent. The transmission is recorded by the company on producing proof of entitlement of shares.

In simpler words, a Transfer of shares refers to the transfer of title to shares, voluntarily, by one party to another. Transmission of shares is the transfer of title to shares by the operation of law e.g. Insolvency, death, inheritance or lunacy of the member.

The people frequently mistaken the terms transfer and transmission of shares for each other and hence end up using them as synonyms. Although one should know that the terms vary in their meaning and concept as well. Transfer of shares is a voluntary act of a member, but Transmission of shares occurs due by the act of law i.e. in case if the member passes away or becomes insolvent. To further understand, the difference between transfer and transmission of shares, you can have a look at the quick summary over the basic differences that the transfer and transmission of shares hold with each other.

Apart from the very basic differences between Transfer and Transmission of Shares, here are a few key differences mentioned below:

  1. When the shares are being transferred from one party to another party, voluntarily, it is known as transfer of shares. But when the transfer of shares happens due to the operation and by act of law, it is referred to as transmission of shares.
  2. Transfer of shares is done intentionally and in complete agreement and by the will of a person, whereas death, bankruptcy and loss of mental health are the reasons for transmission of shares.
  3. The transfer of shares is initiated by the transferor and transferee, whereas the transmission of shares is initiated by the legal heir of the shareholder. Transferee pays an adequate consideration to the transferor for the transfer of shares. In the case of transmission of shares, there is no consideration that has to be paid.
  4. Execution of valid transfer deed is absolutely necessary when there is a transfer of shares, but the case is not the same when it comes to transmission of shares.
  5. When the transfer is completed, the liability of the transferor is over. On the other hand, the original liability of shares exists.

       6. Stamp duty is payable on the market value of shares when it comes to the transfer while in the transmission of shares no stamp duty is to be paid at all.

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