Key Difference – Transfer vs Transmission of Shares
Transfer of shares and transmission of shares both involve the change of ownership of shares in a company. Transfer of shares refers to the investor voluntarily altering the ownership of his or her shares by giving them to another investor. Transmission of shares is a mechanism by which the title to shares is devolved by death, succession, inheritance or bankruptcy. This is the key difference between transfer and transmission of shares.
What is Transfer of Shares
Shares can be transferred due to a number of situations such as raising new capital, gifting shares to another individual or recouping investment (recover investment). Here, the original owner of the shares is referred to as the ‘transferor’ and the new holder of shares is the ‘transferee’. In a transfer of shares, a ‘stock transfer form’ should be completed stating all the relevant information of the transfer and the share certificate should also be handed over to the new holder. The new shareholder is obliged to pay a stamp duty upon the transfer of shares in case the holder is paying more than £1,000 to acquire the shares.
The shares of a public company are generally freely transferable. Once shares are listed on the stock exchange there is limited control over the subscribers to the shares. However, there may be pre-agreed criteria applicable to restrict a transfer of shares as follows.
Restrictions by the Articles of Association (AOA)
The articles of association set out how the company is run, governed and owned. The articles can put restrictions on the company’s powers in order to protect the interest of the shareholders. AOA may also state the ability of the company to repurchase shares at a given point of time
This is an agreement between the shareholders of the company formed with the main purpose of safeguarding their investment. This type of agreement may be formed collectively among all shareholders or within a specific class of shareholders. Clauses can be included to prevent undesirable parties acquiring shares in the company that may result in a dilution of control.
Refusal by the Board of Directors
Board of directors is given the power by the Articles of Association to accept or reject the request to transfer the shares. If the directors feel that the request to transfer is not in line with the best interest of the company they will not allow the transfer to proceed. A special resolution has to be passed in case that the directors wish to disallow the transfer.
What is a Transmission of shares?
The transferor has to execute a valid deed in favour of the transferee if a share transmission is to materialise. Provisions related to transmission of shares are specified in section 56 of Companies Act of 2013. In the case of death of the owner of shares, the shares will be transmitted to his or her legal heirs. The beneficiary heirs should have their names entered in the register of members of the company if they are to be entitled to the shares of the deceased shareholder.
Documents needed to apply for the transmission of shares of a deceased shareholder are,
- Certified copy of the death certificate
- Original share certificate
- Succession certificate of letter of administration
- Request for transmission signed by the legal heirs
What is the difference between Transfer and Transmission of Shares?
Transfer vs Transmission of Shares
|Voluntary transfer of shares done by the existing shareholder to the new shareholder.||Change of ownership is done at death, bankruptcy or inheritance of a shareholder.|
|Consideration is required.||Consideration is not required.|
|Intervention of the Board of Directors|
|Board of Directors can refuse to transfer the shares.||Board of Directors cannot refuse for transmission of the shares.|
|Once transferred, the original has no obligation towards the shares.||The original obligation is continued by the new holder.|