In 2025, the Reserve Bank of India has made amendment in Banking Laws permitting upto four nominees to be registered with Banks for bank accounts and fixed deposits, with the objective of simplifying succession process and distribution of assets to the next generation, on passing away of an account holder.
Shares of a company are also similar financial assets and there are mandatory provisions for registering nominee or formally opting out of it in respect of demat accounts, where shares of listed/public and some specified private companies are held in dematerialised form. Provisions are also available to register nomination for shares of private companies held in physical form for a smooth succession process.
This note briefly outlines the legal framework and process for nomination of physical shares of Indian private companies, with a view to enabling smoother succession.
What is Nomination?
The dictionary meaning of the word ‘Nomination’ is to suggest the name of a person for a position, job or prize etc and in context of assets, nomination refers to specifying the name of the person who should inherit/receive the said asset in the event of the demise of the original holder.
Section 72 of the Companies Act, 2013 gives a right to every shareholder of an Indian company to nominate any person to whom the securities/shares held by the original shareholder shall vest in the event of death of the original shareholder. In case of joint holders, the joint holders can jointly nominate a person to whom all the rights in the concerned shares shall vest in the event of death of all the joint holders.
Effectively, nomination is a written notice by a shareholder to the concerned company and in the event of demise of the shareholder, it enables the company to identify a single legal representative for transmission of the shares, thereby avoiding delays caused by process for mutation / succession certificate and possible complications that may arise from
disputes among multiple legal heirs.
Why Nomination is desirable?
Through a nomination, a shareholder decides and nominates a person who will inherit his/her shares in case of his/her demise, removing the possible confusion and uncertainty in case of multiple legal heirs. Nomination substantially simplifies the transmission process and, in most cases, eliminates the need for probate, succession certificate or other court-based documentation.
What may happen without a Nomination?
In the absence of a nomination, transmission of shares can become time-consuming and cumbersome. As per Section 56 of the Companies Act, 2013 and Secretarial Standards, the legal heirs of a deceased shareholder have to follow the following procedure:
- In case a Will is left by the deceased shareholder, a probate of the will can be insisted by the concerned company – a process which can take months and involve hefty legal costs.
- In case of no Will, the company may insist on a Succession Certificate (from a court) or alternatively at least an affidavit, indemnity bond, and NOC/Relinquishment Deed from other legal heirs, if the shares are proposed to be transmitted to one of the many legal heirs of a deceased shareholder. Verification of documents and internal approvals may further delay the transmission. (Ref. Secretarial Standard – 6 (Clause 1.3)).
Transmission process with a registered nomination
Where a valid nomination exists, the nominee is generally required to submit:
- Death Certificate,
- Original Share Certificate,
- KYC documents, as required by the Company,
Upon verification, the company completes the transmission process and update the statutory registers accordingly. Stamp Duty is not applicable on transmission of shares. The nominee may also transfer the shares directly to a third party without first registering the shares in his/her own name.
How to Nominate?
It is very simple process. The shareholder needs to complete the following procedure:
- Fill Form SH-13 and submit to the concerned company.
- The Company will record the nomination after signature verification, and nomination register updated accordingly.
- An existing nomination can also be cancelled or altered by filing the prescribed Form SH-14 to the Company.
- In case of minor nominee, details of the legal guardian must be provided.
It is advisable to periodically review and update the nominee, especially after major life events, like marriage, childbirth etc.
Joint Holders
Nomination for jointly held physical shares is optional, as survivorship already operates. However, joint holders may, if they so desire, jointly nominate a person. In case of DEMAT, shareholders can approach to their respective depository participants.
Non-Resident Indians
Where the nominee is a Non-Resident Indian (NRI), certain additional compliances apply under the RBI and FEMA framework:
- The transmission of shares upon the death of the resident shareholders will not be treated as fresh transfer under FEMA.
- RBI permits such transmission to an NRI on a repatriable or non-repatriable basis, depending on the nature of the original holding and sectoral restrictions.
- No prior RBI approval is required if the company operates in a sector where foreign investment is permitted under the automatic route and applicable sectoral caps are complied with.
- The NRI nominee must submit few additional documents/information to the Company:
- Copy of passport (Indian or foreign, as applicable)
- Overseas address proof,
- Declarations as per FEMA regulations and residential status confirmation,
- PAN card or Form 60,
- Details of bank account details.
Your shareholding is your legacy and deserves protection. A timely call and step today can ensure a smooth succession and peace of mind to your heirs tomorrow.
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Disclaimer: This article is intended solely for general educational and informational purposes. It does not constitute legal advice or professional opinion. Readers are advised to consult a professional or refer to the latest applicable laws and regulations before acting on any information contained herein. The provisions and interpretations may vary with subsequent amendments or judicial pronouncements.
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