Can Legal Heirs Claim Company Shares?

When a shareholder dies, their company shares are typically inherited by their legal heirs as per the succession laws or the terms outlined in a will. However, the process of transferring the deceased's shares to the heirs is governed by specific legal procedures. The legal heirs must go through a series of steps, such as submitting the necessary documents and completing formalities with the company, to claim and transfer ownership of the shares.

Can Legal Heirs Claim Company Shares?

Claiming Shares After Death of a Shareholder:

Yes, legal heirs can claim the company shares owned by a deceased shareholder. The shares become part of the deceased's estate, and the legal heirs inherit them just like any other assets, subject to the laws of succession. However, they must follow the legal process to transfer the ownership of these shares into their names.

Procedure to Transfer Shares to Legal Heirs:

The process for transferring company shares to the legal heirs involves the following key steps:

Obtain the Death Certificate:

The first step is to obtain the death certificate of the deceased shareholder. This document is necessary to prove that the shareholder is no longer alive.

Obtain the Legal Heir Certificate or Succession Certificate:

To prove their entitlement, the legal heirs must provide proof of their relationship to the deceased. This can be done through a Legal Heir Certificate or a Succession Certificate issued by the court. These certificates confirm the legal heirs of the deceased and their right to inherit the shares.

Verify Shareholding:

The legal heirs need to verify the deceased's shareholding in the company. If the shares are in physical form, the heirs must obtain the share certificates. If the shares are in dematerialized form (demat), they will need the demat account details.

Submit Share Certificates or Demat Account Details:

For physical shares, the legal heirs must submit the original share certificates along with the death certificate and Legal Heir Certificate to the company or its share transfer agent. For demat shares, the heirs must provide their demat account details to the depository participant (DP) and request the transfer of shares.

Transfer of Shares by the Company:

After verifying the required documents, the company will initiate the transfer of shares to the legal heirs. If the shares are in physical form, the company will issue new share certificates in the name of the heirs. For dematerialized shares, the shares will be transferred to the heirs' demat account.

Tax Implications:

The legal heirs must also be aware of any tax implications related to the transfer of shares. In case of capital gains tax, the heirs might need to consider the fair market value at the time of the deceased's death as the cost of acquisition for calculating future capital gains.

Shareholder's Will and Testament:

If the deceased shareholder had a will, the process becomes more straightforward. The will may specify who inherits the shares, and the legal heirs can claim the shares based on the instructions provided in the will. If the shares are bequeathed to a specific heir, they may be transferred to that person, subject to the relevant legal formalities. In case there is a dispute regarding the inheritance of the shares, the heirs may need to approach the court.

Companies with Restrictions on Share Transfer:

In some cases, companies may have restrictions on the transfer of shares. This is particularly common in private limited companies, where the transfer of shares is often subject to the approval of the company’s board of directors. If the company has such restrictions, the legal heirs may need to seek approval from the board before the shares can be transferred.

Shares Held in a Joint Account:

In the case of shares held in a joint account, the transfer of shares will typically pass to the surviving account holder(s) without any need for further formalities. However, if the shares are held in a joint account with rights of survivorship, the legal heirs of the surviving shareholder can claim the shares in case of the death of the joint holder.

Key Documents Needed for Claiming Company Shares

The following documents are typically required to claim company shares:

• Death Certificate: Official proof of the shareholder's death.
• Legal Heir Certificate or Succession Certificate: Proof of the legal heirs and their right to inherit the shares.
• Share Certificates (for physical shares): Original share certificates issued by the company.
• Demat Account Details (for demat shares): The legal heir’s demat account details for the transfer of shares held electronically.
• Will (if applicable): If the deceased shareholder left a will, the heirs may need to submit it to the company to support their claim.

Example

Scenario 1:

Mr. Raghav was a shareholder in a publicly listed company. Upon his death, his legal heirs (wife and two children) need to claim his shares. They obtain the death certificate and apply for a Legal Heir Certificate from the local authorities. After submitting these documents along with the original share certificates to the company’s transfer agent, the shares are transferred into their names.

Scenario 2:

Ms. Anjali’s father passed away with shares held in a demat account. After his death, she, as the legal heir, provides the necessary documents, including the succession certificate, death certificate, and her demat account details, to the depository participant. The shares are then transferred to her demat account after proper verification.

Conclusion

Legal heirs can claim company shares owned by a deceased shareholder through a well-defined process that involves submitting the necessary documents such as the death certificate, Legal Heir Certificate, and share certificates (or demat account details). Once the documents are verified, the shares can be transferred to the legal heirs’ names. However, the process may differ based on whether the shares are in physical or dematerialized form, and the company may have its own specific procedures. It is crucial for the legal heirs to understand the transfer process and ensure they have the correct documentation to facilitate the smooth transfer of shares.