Transfer of shares on account of operation of law is termed transmission of shares. Transmission of shares occurs in case of death, insanity or insolvency of an individual member or, if the member is a company, on its liquidation. In all such cases the legal representative, administrator or the official assignee or receiver respectively shall be entitled to the shares. It also includes devolution of title of the shares on account of constitutional changes.
The person claiming the title to the shares has to make an application to the company for transfer of shares in his name. Formal instrument of transfer is not required but the company may ask for probate, succession certificate, letter of administration, certificate of death etc.
In case of death of a member, his legal representatives can validly transfer these shares to any person, although he may not himself be a member on the date of execution of the transfer deed (Sec. 109).
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He is also entitled to dividends declared by the company, but he is not entitled to vote at the meetings of the company (Articles 28 of Table A). However, if the company’s articles permit, the directors may withhold payment of dividend to compel a legal representative to elect whether he will or will not be a member of the company.
A company can refuse to register a transmission if there is a provision to that effect in the Articles. But the power must be exercised by the directors in good faith. The aggrieved party can appeal to the Company Law Board (Tribunal) under Section 111 for the registration of transmission or for rectification of the company’s register of members.