In the context of inheritance, it is essential to understand the differences between "Transmission of Shares" and "Transfer of Shares."
Upon a shareholder's demise, shares will be transmitted to the deceased's legal personal representative by operation of law, which is commonly the executor or administrator, through grant of probate or letters of administration. By notifying the company and providing the grant of probate or letters of administration, the legal personal representative will be registered as the shareholder.
A transmission of shares cannot be rejected by the company, however, a transfer of shares from the legal personal representative to the beneficiaries, MAY be rejected by the company with justifications.
Transmission of Shares
When a shareholder passes away, his shares devolve to the executor or administrator with evidence of probate of the will or letter of administration, and this process effectively transmit the shares of the deceased to the legal personal representative through operation of law, which the legal personal representative will be registered as the holder of the shares.
Q: Can the Company refuse to perform the transmission of shares from the deceased to the executor / administrator as the legal personal representative?
No. Pursuant to Section 109 Companies Act 2016,
Subsection (4): Any document which is by law sufficient evidence of probate of the will or letters of administration of the estate of a deceased person having been granted to a person shall be accepted by the company as sufficient evidence of the grant.
Subsection (5): The company shall register the person as a shareholder or debenture holder of the company in respect of the shares or debentures within sixty days from receiving the notification.
Subsection (6): The registration of transmission of shares or debentures under this section shall entitle the registered holder to the same dividends and other advantages and to the same rights in relation to meetings of the company or to voting or otherwise.
Subsection (8): The company and every officer who contravene this section commit an offence and shall, on conviction, be liable to a fine not exceeding ten thousand ringgit and, in the case of a continuing offence, to a further fine not exceeding five hundred ringgit for each day during which the offence continues after conviction.
(emphasis added)
Transfer of Shares
Q: Can the Company refuse the transfer of shares to the beneficiaries?
It is possible. While transmission of shares is a statutory obligation, transfer of shares may be refused by a company. Further, a company is not required to recognise the interests of the beneficiaries who are not a registered member / shareholder.
Pursuant to Section 106 Companies Act 2016, the company’s Constitution may expressly permits the directors to refuse or delay registration for the reasons stated, the directors may pass a resolution to refuse or delay the registration of the transfer within 30 days from the receipt of the instrument of transfer and the resolution sets out in full the reasons for refusing or delaying the registration, and the notice of the resolution is required to be sent to the transferor and the transferee within 7 days of the resolution being passed.
However, do note that the directors’ refusal or delay of the registration of transfer may be challenged depending on the facts and circumstances of the case.