Q.What is meant by transmission of shares? State the circumstances under which it takes place.

Transmission is the route by which shares change hands without anyone actually choosing to sell or buy them.

While transfer of shares always begins with a shareholder's own decision to part with his shares, some changes in share ownership happen without any such decision at all — simply because the law recognises that certain events make it impossible, or inappropriate, for the original holder to continue holding the shares. This is called transmission of shares: the passing of title to shares to another person by operation of law, on the occurrence of a specified event, rather than through any sale, gift, or other voluntary transaction.

The Companies Act, 2013 deals with transmission alongside transfer in Section 56, and it is recognised to occur in the following circumstances:

1. Death of a member. On the death of a shareholder, his shares pass to his legal representative — an executor if he left a will, or an administrator/legal heir under the law of intestate succession if he did not.

2. Insolvency of a member. If a member is legally adjudged insolvent, his property, including his shares, vests by law in the Official Assignee or Official Receiver, who administers it for the benefit of his creditors.

3. Lunacy or unsoundness of mind of a member. Where a member is judicially declared to be of unsound mind, his shares vest, for the purpose of management, in his committee or lawfully appointed guardian. …

Students sometimes list only 'death of a shareholder' as the sole cause of transmission and forget insolvency, lunacy, and the winding up of a corporate member, …