In Jan-19 when SEBI banned transfer of physical shares (without dematerializing), there was a major concern about what happens to shares inherited. However, we need to remember that when you inherit shares on the demise of a family member, it is not a transfer of shares but a transmission of shares. Transfer is a voluntary activity while transmission is act of law. The SEBI order of 2019 only bars transfer of physical shares. Transmission of physical shares is still permitted.
However, when a closer family member like your mother passes on holding shares in physical form, it does create some immediate challenges. You can get over these challenges by adopting a very methodical approach. In this case, if you mother has passed away holding physical share certificates in her name, here is how you go about it.
What if she has already appointed you as a nominee for the shares?
In this case, the process becomes quite simple for. You need to file an application for transmission of shares with the concerned registrar. The application must be accompanied by a proof of nomination in your favour and also a copy of the death certificate of your mother. Based on these documents, once they are verified by the registrars of the companies where shares are held, they will execute transmission of shares in your name.
Once you get the physical shares transferred to your name, you have a choice to either hold it in physical form or dematerialize these shares and hold in your demat account. If you intend to just keep the shares, you can hold the same in physical form. However, in case you intend to sell the shares, then dematerialization is mandatory. In fact, even if you don’t intend to sell immediately, it is better to dematerialize these shares so that you are able to monetize the shares even without selling them. In that case, a simpler method is to opt for transmission-cum-demat or TCD where dematerialization happens along with transmission.
You need to ensure that the nominated name and the name in your demat account is the same, which makes the task a lot simpler. Otherwise, you can open a fresh demat account just to get the shares transmitted and then transfer them via off-market transfer into your principal demat account. There are times when your mother may have made multiple nominations. In that case the transmission will happen into a joint account and then you are free to transfer the shares as per your internal agreement.
What if you mother passes away without nomination?
This could make the process a little more complex and long winding. In the absence of a nomination, the transmission will happen under SEBI LODR regulations by process of law. In this case, the application for transmission must be accompanied with the death certificate and a legal affidavit signed by the magistrate stating the list of legal nominees for the shares. The process requires legal vetting and takes a longer time than a clear nomination
The procedure in this case must be understood clearly. In case there is no nomination of the shares, even a probate of will, succession certificate or letter of administration is good enough. If neither of these has been made, then the operation of law kicks in. Firstly, if the shareholdings are in joint name, then it automatically vests on the co-owner. This is simple and just requires an application to the registrar with a copy of the death certificate. However, if your mother is a single holder and died without nomination or will, then it will require a duty stamped affidavit by all the legal heirs.
Can you get sole ownership if there are multiple legal heirs?
If all the legal heirs are OK with you getting the sole ownership of shares, then the law recognizes that. In such cases, there are two scenarios you must look at. Firstly, if the value of shares is less than Rs2 lakhs, then a simple NOC from all legal heirs in your favour is sufficient. Alternatively, a family settlement agreement with an indemnity bond is fine.
However, in case the value of shares is more than Rs2 lakhs, all legal heirs will have to come together and give a signed declaration affidavit identifying you as the rightful claimant of the shares. That should be enough for you to effect transmission.
Thumb rules to remember
Here are 3 basic thumb rules to remember in such cases. Firstly, always ensure that holdings are dematerialized rather than holding in physical form, even if you do not intend to sell the shares immediately. Secondly, nomination / probate will is always advisable to avoid legal disputes in the future, especially in case of large value holdings. Lastly, let all these details be documented, registered and accessible to legal heirs. It can solve a million problems.