Regnum RTA

REG. No. : INR000004316

Private Limited Companies Are Required To Demat Their Shares​


Rule 9 delineates the requisites and directives concerning the obligatory dematerialization of shares, specifying when and how private limited companies (excluding small companies) must transition from physical share certificates to electronic form. The applicability of Rule 9 is critical, defining the circumstances mandating dematerialization and exempting certain categories of companies, such as Nidhi Companies, Government Companies, Wholly Owned Subsidiary Companies of Public Companies, and Small Private Limited Companies.

The notification introduces Rule 9B, focusing on the dematerialization of securities by private companies. This rule mandates that private companies (excluding small companies) issue securities only in dematerialized form, aligning with the Depositories Act, 1996. Companies have eighteen months from the closure of their financial year ending on or after March 31, 2023, to comply with Rule 9B.

The impact of dematerialization extends to unlisted public companies as of October 2, 2018, requiring dematerialization of securities held by promoters, directors, and key managerial personnel before making certain offers. For private companies subject to Rule 9B, any transfer or subscription of securities post the compliance date must occur in dematerialized form.

These amendments signify the government’s drive to modernize and digitize securities issuance and ownership, aiming to enhance transparency, investor protection, and overall efficiency in the Indian corporate sector. The changes are anticipated to positively impact the business landscape, providing a smoother and more secure process for companies and investors.

Rule 9B introduces a compliance requirement for private limited companies, necessitating the conversion of shares into dematerialized form within 18 months after the financial year ending March 31, 2023. The rule brings about a transformative shift in how these companies handle shares, emphasizing compulsory dematerialization and dematerialized share transfers.

Compulsory Dematerialization mandates that shares be exclusively issued and held in dematerialized mode, eliminating the legal standing of physical share certificates. Dematerialized Share Transfers require electronic transactions through demat accounts, expediting transactions and improving transparency.

The government’s dedication to modernizing business operations is evident in the implementation of Rule 9B, aligning with international trends favoring dematerialization for enhanced market efficiency and security. Professionals in private limited companies must acquaint themselves with these regulations, ensuring timely compliance to avoid legal repercussions.

A step-by-step compliance process involves assessing Rule 9B applicability, initiating the dematerialization process, ensuring dematerialized share transfers, and maintaining comprehensive compliance documentation for regulatory reporting and auditing purposes. Adapting to Rule 9B is crucial for professionals to prevent legal consequences and leverage the efficiency and security benefits offered by dematerialization.