Dematerialization of private limited company share

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DEMATERIALIZATION OF SHARES

Refers to the process of converting physical share certificates into electronic form. This is done so that shares can be traded electronically on stock exchanges like Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), making the process more efficient, secure, and transparent.

Key Points about Dematerialization:

1.     Purpose:

·         To eliminate the risks associated with physical certificates like theft, loss, forgery, or damage.

·         To make trading faster and more seamless.

2.     How It Works:

·       The shareholder opens a Demat Account with a Depository Participant (DP) (like a bank or     brokerage firm).

·     The physical share certificates are submitted to the DP along with a Dematerialisation Request Form (DRF).

·         The DP forwards the request to the respective Depository (like NSDL or CDSL in India).

·        After verification, the physical shares are destroyed, and the equivalent number of shares are credited in electronic form to the shareholder’s Demat Account.

3.     Major Depositories:

·         NSDL (National Securities Depository Limited)

·         CDSL (Central Depository Services Limited)

4.     Benefits:

·         Safe and secure storage of shares.

·         Easy and quick transfer/sale of shares.

·         No stamp duty on transfer of securities.

·         Reduced paperwork and transaction costs.

5.     Mandatory Dematerialization:

·         In many countries (including India), dematerialization is now mandatory for trading in listed shares on stock exchanges.

6.     Mandatory Dematerialization latest update in India:

·          As per MCA Circular: Vide notification dated October 27, 2023 Government of India, Ministry of Corporate Affairs has notified to The Companies (Prospectus and Allotment of Securities) Rules in accordance with provisions of the Depositories Act, 1996 (22 of 1996) and regulations, making it mandatory for every Private Company or body corporate which is not small company to facilitate dematerialization of all its existing securities and issue the securities only in dematerialized form.

       According to section 2(85) of the Companies Act, 2013 & as per Companies (Specifications            and definitions details) Rules 2014, 

      A small company means a company that meets the following criteria: 

      Condition 1: Paid-up capital of the company should not exceed INR 4 Crores; and. 

      Condition 2: Turnover of the company should not exceed INR 40 Crores.

    The deadline for dematerialization of securities for private companies, other than small 

    companies, has been extended to June 30, 2025.

    This extension was announced by the Ministry of Corporate Affairs (MCA) on February 12, 2025.

   The deadline for dematerialization of securities for private companies, other than   small                companies, has been extended to June 30, 2025.

     This extension was announced by the Ministry of Corporate Affairs (MCA) on                                   February 12, 2025.

Seema Mhatre & Asociates

ACS Seema Shashank Mhatre
IICA certified Independent director
9821412594

[O] : 916 Grohitam Premises, Sector19, 
          Plot No 14B,APMC Market, Vashi 
          Navi Mumbai 400705, Maharashtra.

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