Dematerialisation of Shares

Dematerialisation of Shares

Paper-based documents, now a hard reality to maintain and keep track on regular basis. It is easy to lose a paper document and also easy to miss an important document in a pile of paper documents.

Dematerialization is the process of converting your shares and securities in physical mode into digital or electronic form.  

The basic concept is to smoothen the process of buying, selling, transferring and holding shares and also about making it cost-effective and foolproof. All your securities are stored in an electronic form instead of physical certificates.

Dematerialisation of Shares

The Ministry of Corporate Affairs (MCA) has issued a Notification dated 27th October 2023 impacting private companies’ shareholding structure. This notification outlines the mandatory dematerialization of securities for all private companies, excluding small companies, as per Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

Advantages/ Benefits of Dematerialisation of Shares

  • Easy and Convenient: A Demat account provides you the facility to carry out the transactions electronically. With the help of a Demat account, one can monitor the portfolio from anywhere across the globe at their convenience.
  • Fund Transfer: Linking the Demat account with the bank account, one can easily transfer funds electronically.
  • Safe and Secure: Demat account is the most secure and safest way to carry out transactions by electronic means. All the risks like theft, damage, loss of share certificates, etc. that were associated with holding shares in physical form are completely eliminated.
  • Nomination Facility: Demat account provides you the facility to grant the right to operate your Demat account to the nominee in your absence. With this facility, you can carry out transactions in your Demat account with the help of a nominee also.
  • Paperless: One of the main benefits of using a Demat account is that it excludes the need for paper..
  • Avail Loan Facility: The Demat account helps you in availing loans against the holdings in dematerialized form. The securities and shares held in Demat account can be kept as collateral and loan can be taken against them.
  • Multiple Purposes: In the Demat account, you can not only hold shares or equities but also debt instruments and even purchase government bonds, exchange-traded funds, etc. in the Demat account

Provisions of Companies Act, 2013 related to Mandatory Demat of Shares of Private Limited Company 

  • Section 29 of Companies Act, 2013 
  • Rule 9 of Companies (Prospectus and Allotment of Securities) Rules, 2014 

Applicability of demat provisions to the following type of companies:

  • Public Limited Companies
  • Non-Small Private Limited Companies

Non-Applicability of Demat provisions to the following type of Companies: 

  • Nidhi Companies, 
  • Government Companies, 
  • Wholly Owned Subsidiary Companies of Public Companies, 
  • Small Private Limited Companies
  • Section 8 Company (Limited by guarantee)

Definition of Small company 

Small company means a company, other than a public company,

  1. Paid-up share capital of which does not exceed Four Crore rupees or such higher amount as may be prescribed 
  2. Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed Forty crore rupees or such higher  amount as may be prescribed

Provided that nothing in this clause shall apply to: (the following are not considered as Small Companies as per the Companies Act, 2013)

  1. a)  A holding company or a subsidiary company. 
  2. b)  A company registered under section 8; or 
  3. c)  A company or body corporate governed by any special Act.

The steps of Dematerialisation are as mentioned below:

  • Amendment of Articles of Association ( To authorize shareholders to hold shares in dematerialised form)*
  • Appointment of Registrar and Transfer Agent (RTA)
  • Choice of depository (No specific criteria, can be chosen based on the shareholders’ account is being held in which depositary)
    • National Securities Depository Limited (NSDL) or
    • Central Depository Services (India) Limited (CDSL) 
  • Obtaining International Securities Identification Number (ISIN)
  • Opening Demat Account of the Company
  • Dematerialisation of Existing Shares
  • Dematerialisation for Shareholders/Member

*The amendment of AOA is not mandated as per the Act, however in view of good governance and to align the AOA in line with Dematerialisation and Depositaries Act, it is suggested to amend the Articles of Association of the Company. Also, certain RTA’s are mandatorily seeking for Amended AOA inclusive of clause authorising shareholders to hold shares in dematerialised form.

Key Noting and Compliances

  1. Timeline for Compliance: Private companies must ensure the conversion of all existing physical shares into demat form by September 30th, 2024.

If a private company, as of the last day of a financial year ending on or after March 31st 2023, is not a small company based on audited financial statements, it must comply with this rule within eighteen (18) months of the closure of such financial year.

  1. Time for completion of process of Dematerialisation of shares: Dematerialisation will ordinarily take around 30 days.
  2. Consequences of Non-Compliance: Failure to dematerialize shares by the specified deadline will result in the following consequences:
  3. Private companies cannot issue securities after September 30th, 2024.
  4. Shareholders intending to transfer their shares cannot do so in physical form after September 30th, 2024.
  5. ROC Compliances: Private companies are required to file Form PAS-6 with the Registrar of Companies (ROC) within sixty days from the conclusion of each half-year.

The filing deadline for the period from April to September is 29th November, and for the period from October to March, it is 30th May.

  1. Penalties: While there is no specific penalty mentioned under Section for non-compliance, the penalty as per Section 450 of the Act will be applicable.

According to Section 450, companies and every officer in default will be liable to a penalty of Rs. 10,000. In the case of continuing contravention, an additional penalty of Rs. 1,000 per day, after the first day, will be imposed, subject to a maximum of Rs. 2,50,000 for a company and Rs. 50,000 for an officer in default or any other person.


Private companies must diligently comply with the notification issued by Ministry of Corporate Affairs (MCA) regarding dematerialization of shares. It is essential to fully grasp the applicability of these regulations, adhere to the specified timelines, and be aware of the potential consequences of non-compliance. Ensuring compliance with ROC requirements is crucial, as failure to do so can result in significant penalties as stipulated under Section 450 of the Companies Act. Understanding and adhering to these regulations will help avoid legal repercussions and ensure smooth operational continuity.

If yoz have any queries or concerns regarding this compliance, please feel free to reach out at

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