Dematerialisation of Shares of Private Company

An amendment to The Companies (Prospectus and Allotment of Securities) Rules, 2014 was introduced via a notification dated 27-10-2023. This amendment introduced Rule 9B pertaining to the issuance of securities in dematerialised form by private companies.

In accordance with Section 29 of the Companies Act, 2013, in case of such class or classes of unlisted companies, as may be prescribed in Rule 9A and 9B of The Companies (PAS) Rules, 2014, the securities shall be held or transferred only in dematerialised form in the manner laid down in the Depositories Act, 1996 and the regulations made thereunder.

Hence, According to the Rule 9B (1) of The Companies (PAS) Rules, 2014, Section 29 applies to Every private company, other than a small company according to the Rule 9B (1) of The Companies (PAS) Rules, 2014.

Further as per Rule 9B(2), Section 29 needs to be followed within 18 months from the closure of FY 2022-23, i.e. by 30-09-2024.

Small Companies means “ a company other than a public company whose paid-up share capital is not more than ? 4 crore and Turnover is not more than ? 40 crore.

Implications

1.????? Every holder of securities intends to transfer such securities on or after the date when the company is required to comply with this rule, shall get such securities dematerialised before the transfer.

2.????? Every holder of securities subscribes to any securities of the concerned private company whether by way of private placement or bonus shares or rights offer on or after the date when the company is required to comply with this rule shall ensure that all his securities are held in dematerialised form before such subscription.

3.????? As there is no specific penal clause addressing non-compliance with Section 29, the general penalty prescribed under Section 450 will be applicable, entailing a penalty of ? 10,000/-, with an additional penalty of ? 1,000/- for each subsequent day of non-compliance, up to a maximum of ? 2 lakhs.