Dematerialize of shares now applicable to all private companies
Background:
The MCA had previously mandated that public companies must maintain and transact their shares in demat form starting from October 2, 2018. However, this requirement was not extended to private companies which is applicable now with effect from October 27, 2023. This amendment rule does not apply in case of a government company.
Key Points: Issue of securities in dematerialised form by private companies:
Every Private company, which is not a small company, must within a period of 18 (eighteen) months of closure of such financial year (i.e., before October 1, 2024)
Issue the securities only in Dematerialised form; and
Facilitate Dematerialisation of all its existing securities.
Every private company making any offer for issue of any securities or Buyback of securities or issue of Bonus shares or Rights offer, must ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialized.
Every holder of securities of private company who intends to transfer such securities or who subscribes to any securities of the concerned private company whether by way of private placement or bonus shares or rights offer, must ensure that all his securities are held in dematerialised form before such transfer or subscription.
Share warrants issued by public companies:
Every Public company which issued share warrants prior to commencement of the Companies Act, 2013 and not converted into shares must:
within a period of 3 (three) months of the commencement of the Amendment Rules inform the registrar of companies about the details of such share warrants in Form PAS-7; and
within a period of 6 (six) months of the commencement of the Amendment Rules, require the bearers of the share warrants to surrender such warrants to the company and get the shares dematerialized in their account. The company must place a notice for the bearers of share warrants in Form PAS-8 on the website of the company and publication of the said notice in local and English newspapers.
Failure to surrender the share warrants within the 6 (six) months period results in conversion of such share warrants into dematerialised form and its transfer to the Investor Education and Protection Fund (IEPF) as established under section 125 of the of the Companies Act, 2013.
SW Point of View:This amendment will ensure better transparency and mitigate fraud, risk of loss and theft. Further, the share transfer process will become more efficient and reduce the company’s expense of printing and distribution of physical certificates. For regulators, this will aid them in mitigating benami transaction, money laundering, and other such activities.
