The government has directed all large unlisted private companies, other than small companies, to dematerialise their shares by September 30, 2024.
The Ministry of Corporate Affairs (MCA) has stated that every private company, other than a small company, will issue the securities only in demat (dematerialised) form and facilitate the dematerialisation of all its securities.
Private companies, which are not small companies, as of March 31, 2023, have an 18-month window to comply with the norms or until September 30, 2024.
As per the MCA notification, any company making any offer for the issue of any securities, buyback of securities or issue of rights offer or bonus shares after the date when it is required to comply with this particular rule would have to ensure that the complete holding of securities of its promoters, directors and key managerial personnel has been in demat format.
In addition, individuals holding securities of private companies would also have to demat shares. At present, listed companies, which are regulated by both the MCA and the Securities and Exchange Board of India (SEBI), are mandated to dematerialise their equity shares.
While there is no limitation on an investor holding shares in physical form, for any transfer of shares, they are required to be converted from physical form to electronic. At the same time, unlisted public companies are also required to demat their shares for undertaking any corporate action, including buyback or issue of bonus or rights shares.
In fact, unlisted private companies comprise the largest number of registered companies. About 14 lakh companies registered with the MCA, or 95% of active registered companies, were private companies as of January 2023. Among these, about 50,000 are estimated to be small companies.
In 2018, the MCA had said that unlisted private companies are required to issue shares in demat form.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.