In the era of digital finance and electronic trading, physical share certificates may seem like a thing of the past. However, many investors still hold these paper documents, especially those inherited or purchased before the digital transformation of the stock market. Transferring physical share certificates is a legal and procedural process that requires attention to detail. This blog will help you understand how the transfer works and why converting physical shares to demat is becoming increasingly essential.

What are Physical Share Certificates?

A physical share certificate is a paper document that proves ownership of a specific number of shares in a company. These certificates contain vital information such as the shareholder's name, the number of shares, the company’s name, and the folio number. Prior to the early 2000s, all shares in India were issued in physical form.

However, with the evolution of the stock market and technological advancements, India adopted the dematerialisation of shares converting physical shares into electronic format to facilitate ease of trade and improved record-keeping.

Why Transfer Physical Share Certificates?

There are several scenarios where transferring physical share certificates becomes necessary:

  • Inheritance: When a shareholder passes away, the legal heirs may need to transfer the shares in their name.

  • Gifting or Selling: If shares are gifted or sold to another person, the transfer must be legally recorded.

  • Correction of Details: If there’s a change in the name due to marriage or legal reasons, or if there's an error in the original certificate, the shares need to be transferred to reflect correct information.

Step-by-Step Process to Transfer Physical Share Certificates

1. Obtain the Share Transfer Deed (Form SH-4)

This form is mandatory for transferring physical shares. It can be downloaded online or obtained from a stockbroker.

2. Execute the Share Transfer Deed

Both the transferor (current holder) and the transferee (new owner) must sign the deed. It must also be affixed with share transfer stamps of the required value, which can be purchased from authorized vendors.

3. Submit to the Company or Registrar

The completed and signed form, along with the original share certificates, should be submitted to the company or its Registrar and Share Transfer Agent (RTA).

4. Verification and Transfer

The company or RTA verifies the documents and processes the transfer. If everything is in order, a new share certificate in the name of the transferee is issued.

Important Guidelines to Remember

  • The transfer deed must be submitted within 60 days of execution.

  • Any mismatch in details or improper documentation may lead to the rejection of the transfer request.

  • Transferring shares held jointly requires the consent and signatures of all joint holders.

Shift Towards Dematerialisation: Why It’s the Future

While the transfer of physical share certificates is still possible, SEBI (Securities and Exchange Board of India) and depositories like NSDL and CDSL have emphasized the need for dematerialisation. As per SEBI’s guidelines, no transfer of securities held in physical form is permitted after April 1, 2019, unless for transmission (in case of inheritance) or transposition (rearranging the order of joint holders' names). Therefore, if you are planning to sell or transfer your shares, it’s best to first convert your physical shares to demat.

How to Convert Physical Shares to Demat

To simplify future transactions, it is advisable to convert your paper shares into electronic format. Here's how:

  1. Open a Demat Account with a registered Depository Participant (DP).

  2. Fill out a Dematerialisation Request Form (DRF).

  3. Submit the DRF along with your original share certificates to your DP.

  4. The DP will forward the request to the company and after verification, the shares will be credited to your Demat account.

Conclusion

Transferring physical share certificates involves meticulous paperwork and adherence to legal procedures. However, with SEBI’s push for dematerialisation of shares, it is advisable to convert your physical shares to demat to enjoy hassle-free ownership and trading. Digital transformation has made the management of investments far more efficient don’t let outdated paperwork hold you back.