Dematerialisation of Shares
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What is a
Dematerialisation of Shares
Dematerialisation of shares is the process of converting physical share certificates into electronic form, facilitating seamless share trading and transfer. In India, the dematerialisation of company shares is managed through depositories, such as NSDL and CDSL. About 1-3% of shareholding in the securities market exists in the physical form, held via share certificates.
In India, two depositories are registered with SEBI and are authorised to operate:
- NSDL (National Securities Depository Ltd.)
- CDSL (Central Depository Services (India) Ltd.)
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Dematerialisation of Shares of Private Companies
Applicability of Dematerialisation of Shares
The dematerialisation of Shares applies to a wide range of entities in the securities market.
- Public Companies: All public companies in India are required to dematerialise their shares.
- Private Limited Companies: Private limited companies, except those categorised as small companies, must also comply with dematerialisation regulations.
- Holding and Subsidiary Companies: Regardless of the financial thresholds set for small companies, any private limited company that is a holding company or a subsidiary of another corporate body must convert physical shares to Demat.
Requirements of Dematerialisation of Shares of Private Companies
To align with Rule 9B, private limited companies should follow these step-by-step procedures for dematerialisation:
- Amend Articles of Association (AoA)
- Appoint a Registrar and Transfer Agent (RTA)
- Obtain International Securities Identification Number (ISIN)
- Open Demat Accounts
- Dematerialize Existing Shares
- Ensure Compliance for Key Personnel
- Filing Form PAS 6 to MCA
Advantages of Dematerialisation of Shares
Converting physical shares to a Demat (dematerialised) account offers several compelling advantages for shareholders and companies alike:
- Enhanced Security: Dematerialization eliminates the risks associated with physical certificates.
- Ease of Transactions: Buying and selling shares become significantly quicker and easier when they are held in a Demat account.
- Reduced Costs: Handling physical documents often involves higher costs due to stamp duties, handling charges, and other overheads.
- Convenience: Managing a Demat account is simpler compared to handling physical papers.
- Automatic Updates: Corporate actions like dividends, stock splits, and bonus issues are automatically updated in the Demat account.
Have a question? Check out the FAQ
Dematerialisation of Company Shares FAQ's
What is dematerialisation of shares?
Dematerialisation refers to the process of converting physical securities, such as share certificates and other documents, into electronic format. These securities are then held in a Demat account.
What are the benefits of dematerialising shares?
Converting physical shares to Demat enhances security, reduces the risk of loss or theft, speeds up trading, and simplifies share management.
Is dematerialisation mandatory for private companies?
Yes, as per MCA's Rule 9B, all private limited companies, except small ones, must dematerialise their shares by September 30, 2024.
What is Rule 9B?
Rule 9B mandates that private companies must issue securities in dematerialised form, convert existing shares to electronic form, and ensure key personnel’s shares are dematerialised before issuing new securities.
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