Heard about the latest mandate imposed on the demat holders?

• Dematerialization of Shares Requirement for Private Limited Companies:

As on October 27, 2023, the Ministry of Corporate Affairs has issued a notification mandating that all Private Limited companies, with the exception of Small Companies and Government Companies, must convert their shares into Dematerialized (Demat) form within 18 months from the end of March 31st, 2023.

• Understanding the Dematerialization of Shares and Its Consequences:

Under this new regulation, companies falling within the scope of the notification are required to convert their shares into electronic Demat form. This means that share certificates will no longer exist in physical form, and instead, they will be digitally stored. Furthermore, these companies are no longer obligated to issue physical share certificates, as all share transfers will be executed electronically.

• Compulsory Dematerialization for Promoters, Directors, and KMP:

An interesting aspect of this directive is that it also mandates that Promoters, Directors, and Key Managerial Personnel (KMP) of the company must dematerialize their shareholdings. In practical terms, the company should establish a Demat account with NSDL/CDSL and designate a Registrar and Transfer Agent (RTA). Subsequently, Promoters, Directors, and KMP should link their Demat accounts with the company and have their shareholdings electronically credited to them. Failure to comply with this requirement will result in the company being prohibited from issuing any further shares or securities including bonus shares in any form and Buyback of shares/securities. However, the company remains eligible to obtain loans from banks or directors without Demat compliance.

• Consequences of Non-Demat Compliance for Other Shareholders:

If shareholder other than Promoters, Directors, and KMP do not dematerialize their shares, they will no longer be able to transfer their physical shares. This means that any shareholder who has not dematerialized their holdings will be unable to sell their shares or subscribe to additional shares. Similarly, anyone wishing to purchase shares in the company must have a Demat account to do so.

• Filing of PAS 6:

Companies covered under this notification are required to submit half yearly returns in the form of PAS 6, notifying the Ministry of Corporate Affairs of the dematerialization details.

Consequently, it is strongly recommended that individuals holding shares in the companies covered by the notification open Demat accounts, and companies should facilitate the dematerialization process for their shareholders.

For more information be in touch [email protected] or visit BCL India.