MCA Notification

Mandatory Dematerialisation of Shares of Private Companies

The Ministry of Corporate Affairs (MCA) has officially extended the deadline for the dematerialisation of shares of private companies to June 30, 2025. This rule, introduced in 2023 under the Prospectus and Allotment of Securities Rules, 2014, applies to private companies meeting specific criteria. The original deadline was September 30, 2024.

The aim of this rule for dematerialisation of private limited company shares is to enhance transparency, streamline share transfers, and improve corporate governance.

Compliance Deadline- June 30, 2025!

MCA’s Deadline Extension for Dematerialisation of Shares

On February 12, 2025, the Ministry of Corporate Affairs amended Rule 9B, extending the deadline for the dematerialisation of shares of private companies. Private limited companies can now issue or transfer securities in physical form until June 30, 2025, instead of the previous deadline of September 30, 2024.

The initial extension was announced on October 27, 2023, under the Companies (Prospectus and Allotment of Securities) Rules, 2014 (PAS Rules) through the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (PAS Amendment Rules). To comply, eligible private companies must assist shareholders in dematerialising their existing physical shares by opening a DEMAT account in India.

Rule 9 B (2) “A private company, which as on last day of a financial year, ending on or after 31st March, 2023, is not a small company as per audited financial statements for such financial year, shall, within eighteen months of the closure of such financial year, comply with the provisions of this rule.

Provided that a producer company covered under this sub-rule shall, within a period of five years of closure of such financial year, comply with the provision of this sub-rule.

Provided further that a private company, other than a Producer company, which is not a small company as on 31st March, 2023, may comply with the provision of this sub-rule by 30th June, 2025”.

Highlights of the MCA Notification

The key highlights of the MCA Notification are as follows:

1. The deadline for the dematerialisation of private limited company shares has extended until 30^th June 2025. This has resulted in the timeframe for private companies in India to complete the dematerialisation of securities and obtain ISIN (International Securities Identification Number).
2. This rule applies to all private companies registered in India under the Companies Act, 2013, except small and producer companies. Any company issuing new shares, transferring shares, or modifying its capital structure must do so in dematerialised form.
3. The amendment aims to simplify the transition for private companies that have yet to comply while enhancing market transparency and aligning with public company regulations. It also ensures seamless investor participation and facilitates digital securities transactions.

What is Dematerialisation of Shares Private Company?

Dematerialisation of shares private company is the process of converting physical share certificates and other securities into an electronic format, eliminating the need for paper documents. When a private company’s shares are dematerialised, the physical certificates are converted into electronic form. This is done by opening a Demat account through a depository.

A depository is an entity that holds securities in electronic form and facilitates seamless transactions, ensuring security, transparency, and ease of trading. Depositories operate under the Depositories Act of 1996 and are regulated by SEBI (Securities and Exchange Board of India). In India, the two SEBI-registered depositories are NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services (India) Ltd.).

Why Dematerialisation of Shares for Pvt Company Is Important?

Dematerialisation of shares for private company is important for the following reasons:

1. Holding securities in a DEMAT account minimizes physical paperwork.
2. Stamp duty rates are lower for DEMAT shares compared to physical shares.
3. DEMAT reduces the risk of fraud in share transfers.
4. No need to issue physical share certificates for new capital; shares are directly credited to the DEMAT account.
5. DEMAT allows for seamless and efficient transfer of securities.

Procedure for Dematerialisation of Shares of Private Company

The step-by-step procedure for the dematerialisation of shares of a private company is as follows:

Step 1: Opening of a Demat Account

Firstly, the applicant needs to open a Demat account with a Depository Participant (DP) such as a bank, stockbroker, or financial institution. For this, the applicant must submit bank account details, identity and address proof and a PAN card.

Step 2: Submit a Demat Request Form (DRF)

Followed by obtaining a demat request form (DRF) from your concerned DP, filling the form diligently and signing it. The applicant should ensure that the names and signatures on the form match with the share certificates and the company’s record.

Step 3: Verification and Processing

At this stage, after successfully submitting the Demat Request Form (DRF), the Depository Participant (DP) will verify the details. Once verified, they will issue a Dematerialisation Request Number (DRN), which allows you to track the status of your request.

Step 4: Forwarding to Registrar and Share Transfer Agent (RTA)

Followed by forwarding the dematerialisation request by the respective DP along with the physical share certificates to the respective Registrar and Share Transfer Agent (RTA) of the issuing company.

Step 5: Conversion to Electronic Form

Once the RTA verifies and approves the request, the physical share certificates will be cancelled and converted into electronic form to prevent misuse.

Step 6: Credit to Your Demat Account

Finally, the dematerialised shares will be credited to the applicant’s Demat account, enabling them to sell, transfer, or pledge the shares.

Key Provisions Under Rule 9B

The list of key provisions under rule 9B is as follows:

• Private companies (except small and producer companies) must comply.
• Essential for share transfers and changes in capital structure.
• Companies need an ISIN for electronic transactions.
• SEBI-registered depositories, NSDL and CDSL, facilitate the process.

Who Needs to Comply?

According to this notification, upon the deadline for dematerialisation of shares of private companies, that must comply include the following categories:

1. Every private company (other than government and small companies)
2. A private company whose paid-up share capital of less than or equal to Rs. 4 crores.
3. A private company whose turnover of less than or equal to Rs. 40 Crores as on 31st March, 2023.

Consequences of Non-Compliance with Rule 9B

The list of consequences of non-compliance with rule 9B of the Companies Act, for private companies are as follows:

• Private companies will be restricted from issuing or allotting securities, including bonus issues and buybacks.
• Shareholders holding physical shares will be restricted from selling or transferring them. They may also lose eligibility for rights issues and dividend benefits.
• The initial monetary penalty for non-compliance with Rule9B is INR 10,000.
• The continuing penalty for non-compliance shall be INR 1,000/- per day until compliance is met, up to a maximum of INR 200,000/-.

How Enterslice Can Help with Dematerialisation?

Enterslice specializes in the dematerialisation of shares of unlisted private companies, providing comprehensive assistance throughout the process. Our expert team ensures that the dematerialisation of shares of a private limited company is carried out efficiently and in full compliance with MCA and SEBI guidelines.

We guide you through every step, from opening a demat account to submitting the necessary forms and ensuring the timely conversion of physical shares into electronic form. With our expertise, we help you eliminate the challenges of managing paper-based securities and ensure your company is ready for seamless electronic transactions. Trust Enterslice for reliable and professional assistance in dematerializing your company’s shares.

Consulting & Legal Advisory Services by Enterslice

Below is an exclusive list of the comprehensive consulting and legal advisory services offered by Enterslice:

• Demat Account Setup with NSDL/CDSL
• Assistance with Share Transfer & Allotment
• Support for Capital Structure Modifications
• Corporate Governance Advisory to align with best practices
• Regulatory Compliance Audits to ensure full adherence
• Obtaining ISIN (International Securities Identification Number)
• Due Diligence for assessing compliance readiness
• Legal Documentation for smooth share transactions
• Shareholder Agreement Drafting & Review
• SEBI Compliance Advisory to ensure regulatory alignment
• Assistance with Investor Reporting & Disclosures
• Digital Securities & Asset Management
• Litigation Support for resolving non-compliance issues
• Strategic Corporate Restructuring advice
• Registrar & Share Transfer Agent Coordination
• Direct Listing & Public Offering advisory services
• FEMA & RBI Compliance for foreign investor regulations
• Taxation & Financial Advisory for optimal structuring
• Post-Demat Compliance Monitoring to ensure ongoing adherence

Final Thoughts – Demat Your Shares on Time!

In conclusion, the MCA has extended the deadline for the dematerialisation of shares of private companies to June 30, 2025. This extension provides private companies with additional time to comply with Rule 9B of the Companies Act, 2013. As a result, private companies and shareholders can now proceed more carefully with the transition from physical shares to electronic form.

Private companies registered in India should take advantage of this extended deadline to complete the dematerialisation process efficiently and ensure compliance with the regulations.

Get Enterslice expert assistance and convert your physical shares to demat.

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