Government asks all private companies to demat shares by Sept 2024

New Delhi, November 6

The government has asked private companies to dematerialise their securities by September 2024, a move that will help enhance transparency and will have a broad impact. The requirement will be applicable to private companies, excluding small companies and government companies.

There are about 1.4 million private companies registered under the companies law with the Ministry of Corporate Affairs (MCA).

Move to enhance transparency

• There are about 1.4 million private companies registered under the companies law with the Ministry of Corporate Affairs
• Private companies can issue securities only in demat form and should facilitate the dematerialisation of all securities by September 2024, according to an MCA notification
• Dematerialisation refers to the conversion of securities held in physical form to digitised form

Private companies can issue securities only in dematerialised form and should facilitate the dematerialisation of all securities by September 2024, according to an MCA notification.

Dematerialisation refers to the conversion of securities held in physical form to dematerialised or digitised form. In this regard, amendments have been made to the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023.

“A private company, which as on the last day of a financial year, ending on or after March 31, 2023, is not a small company as per audited financial statements for such financial year, shall, within 18 months of the closure of such financial year, comply with the provisions of this rule,” the notification dated October 27 said.

Anand Jayachandran, Partner at law firm Cyril Amarchand Mangaldas, said the change is far-reaching and will have a broad impact.

“With about 1.4 million private companies registered with the MCA, this change is far-reaching and will have a broad impact. Share transfers in several private companies are subject to contractual or other restrictions. It is, therefore, important that depository participants follow through on this regulatory change and ensure mechanisms are in place to effectively implement contractual provisions,” he said.

The move is also expected to enhance transparency and help curb possible unscrupulous activities with shares in the physical form.

Under the Companies Act, 2013, private companies have restrictions on the transfer of shares, and the number of its members cannot be more than 200.