Procedure for Appointment of Nominee by Members under Companies Act, 2013

The Companies Act, 2013 introduced various progressive and reformist provisions to strengthen corporate governance and safeguard the interests of shareholders and security holders. One such important statutory facility is the appointment of a nominee by members. Nomination enables a shareholder to designate a person who shall become entitled to the company's securities upon the shareholder’s death, thereby ensuring the continuity of ownership and reducing procedural complexities.

Nomination plays a vital role in minimising disputes among legal heirs, avoiding prolonged succession formalities and providing clarity to companies while processing transmission requests. This blog comprehensively explains the meaning of nomination, applicable legal provisions, eligibility criteria, rights of nominees, OPC-specific requirements and the detailed procedure for appointment of a nominee under the Companies Act, 2013.

Meaning of Nominee under the Companies Act, 2013

A nominee is a natural person designated by a shareholder or security holder to whom the shares or securities of a company shall be transmitted upon the death of such holder. Nomination does not amount to a transfer of shares during the lifetime of the member. It becomes effective only upon the death of the shareholder and operates as a mechanism for transmission of securities.

The major objective of nomination is to facilitate administrative convenience for the company and ensure smooth transmission of securities without requiring immediate compliance with probate, succession certificate or other inheritance formalities.

Legal Provisions Governing Nomination

The statutory framework governing nomination is provided under: -

• Section 72 of the Companies Act, 2013
• Rule 19 of the Companies (Share Capital and Debentures) Rules, 2014
• Rule 3 of the Companies (Incorporation) Rules, 2014 (specifically for One Person Companies)

These provisions apply to: -

• Companies having share capital
• Holders of securities including equity shares, preference shares, debentures and other securities

Who Can Appoint a Nominee?

The following persons are eligible to appoint a nominee: -

• Individual shareholders holding securities in their own name
• Joint shareholders, who may jointly appoint a single nominee
• Sole holders of securities held in physical or dematerialised form

Nomination may be made at any time during the lifetime of the member and can be modified or cancelled as required.

Who Cannot Appoint a Nominee?

Nomination is not permitted in the following cases: -

• Non-individual members such as companies, LLPs, partnership firms, trusts or societies
• Members holding securities in a representative or fiduciary capacity, including shares held by an HUF through its Karta
• Members holding shares as trustees, guardians or legal representatives

Only securities held in an individual capacity qualify for nomination.

Who Can Be Appointed as a Nominee?

Only a natural person can be appointed as a nominee. Artificial or juristic persons such as companies, LLPs, firms, societies or trusts are not permitted to act as nominees under the Companies Act, 2013.

A minor may also be appointed as a nominee, subject to the appointment of a guardian.

Rights of the Nominee

Upon the death of the shareholder, the nominee becomes statutorily entitled to the securities and has the right to: -

• Apply for registration as a member of the company; or
• Transfer the securities to any other person

The nominee is entitled to receive dividends, interest or other economic benefits attached to the securities. However, voting rights and membership rights can be exercised only after the nominee is registered as a member.

The Board of Directors may issue a notice requiring the nominee to elect either to register as a member or to transfer the securities. Such election must be complied with within 90 days of receipt of the notice.

Procedure for Appointment of Nominee by Members

Step 1: Obtaining Consent of the Nominee

The member must obtain the consent of the proposed nominee and collect relevant details such as full name, address, date of birth and identification particulars.

Step 2: Filing of Nomination Form

• Form SH-13 – for making a nomination
• Form SH-14 – for cancellation or variation of an existing nomination

The form must be duly completed and signed by the member and the nominee. In case of joint shareholding, all joint holders must sign the form.

Step 3: Submission to the Company

The completed nomination form must be submitted to the company at its registered office along with: -

• Self-attested identity proof of the nominee
• Address proof of the nominee
• Details of share certificates (for physical holdings)

Step 4: Verification by the Company

The company verifies the authenticity of signatures, statutory compliance and completeness of documents.

Step 5: Entry in Statutory Records

Upon verification, the company needs to record the nomination details in the Register of Members (Form MGT-1) or in any other relevant statutory register which is maintained under Section 88 of the Act.

Step 6: Recording Timeline and Acknowledgement

The company must record the nomination within the duration of two months from the date of receipt of the duly completed form and issue an acknowledgement to the member.

Cancellation or Variation of Nomination

A member may cancel or vary a nomination at any time during their lifetime by filing Form SH-14 with the company. In case of joint holdings, consent of all joint holders is mandatory. The cancellation or variation takes effect from the date the notice is received by the company.

Nomination in Case of Minor

A minor may be appointed as a nominee, provided: -

• A guardian is appointed by the member
• Guardian details are specified in Form SH-13
• The authority of the guardian ceases once the minor attains majority

Nomination in One Person Company (OPC)

Nomination in an OPC is mandatory and governed by Rule 3 of the Companies (Incorporation) Rules, 2014.

Key provisions include: -

• The nominee must be a natural person and an Indian citizen
• Nominee consent must be obtained in Form INC-3 at the time of incorporation
• Nominee can be a member/nominee of only one OPC at any time
• A minor cannot be appointed as an OPC nominee
• Any change in nominee must be filed with the RoC in Form INC-4

Nomination for Debentures and Other Securities

Nomination provisions apply not only to equity shares but also to: -

• Preference shares
• Debentures
• Other securities issued by the company

Nomination in Dematerialised Shares

For securities held in dematerialised form: -

• Nomination is governed by SEBI (Depositories and Participants) Regulations
• Nomination is recorded through the Depository Participant (DP)
• Any change or cancellation is also processed through the DP

Effect of Nomination on Transmission of Shares

Upon the death of a member: -

• The nominee may apply for transmission of securities
• No stamp duty is payable on transmission
• Transmission is processed upon submission of the death certificate and nomination records

This significantly reduces delays and procedural hurdles.

Compliance Responsibility of the Company

Companies are required to: -

• Maintain proper statutory records of nominations
• Record nominations within the prescribed timeline
• Process transmission strictly in accordance with Section 72 of the Act

Non-compliance may lead to shareholder disputes, regulatory observations and governance issues.

Conclusion

The appointment of a nominee by members under the Companies Act, 2013 is a crucial statutory mechanism that ensures smooth and easy transmission of various shares and securities while providing operational certainty to the companies. Although nomination does not determine beneficial ownership under succession laws, it facilitates companies in identifying or recognising a single authorised claimant, thereby minimising various disputes, delays and errors.

By complying with Section 72 of the Companies Act, 2013 and the relevant rules, shareholders can safeguard their investments and ensure continuity of ownership. Members are therefore strongly encouraged to appoint and periodically review their nomination details as part of sound corporate governance practices.