What is dematerialization? - Dematerialisation of shares refers to the process of converting physical share certificates into electronic form.

Why is it applicable to your Company? - Ministry of Corporate Affairs on 27th October 2023 via notification the following rules shall be inserted namely:

In the Companies (Prospectus and Allotment of Securities) Rules,2014-

Rule 9B. Issue of Securities in dematerialised form by Private Companies:

1)Every Private Company, other than small company, shall withinthe period specified-

• a) issue shares only in dematerialised form; and
• b) facilitate dematerialization of all its securities

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 closure of such financial year, comply with the provisions of this rule.

(3) Every private company referred to in sub-rule (2) making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer, after the date when it is required to comply with this rule, shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder.

(4) Every holder of securities of the private company referred to in sub-rule (2), -

• (a) who intends to transfer such securities on or after the date when the company is required to comply with this rule, shall get such securities dematerialised before the transfer; or
• (b) who subscribes to any securities of the concerned private company whether by way of private placement or bonus shares or rights offer on or after the date when the company is required to comply with this rule shall ensure that all his securities are held in dematerialised form before such subscription.

(5) The provisions of this rule shall not apply in case of a Government company.

* Small Company as per Companies Act,2013-

“Small company” means a company, other than a public company-

• i) A paid-up share capital equal to or below Rs 4 Crore or such higher amount specified not exceeding more than 10 Crore
• ii)A turnover equal to or below Rs 40 Crore or such higher amount specified not exceeding more than 100 Crore

Provided that nothing in this clause apply to-

• A) a holding company or subsidiary company
• B) a company registered under section 8: or
• C) a company or body corporate governed by any special Act

By when does it need to be Complied? -

The due date to dematerialize the shares is 30th September 2024.

How should you proceed with the same? -

Step 1- Obtaining of ISIN (International Securities Identification Number)

The company must obtain an International Securities Identification Number (ISIN) through a SEBI-registered Registrar and Transfer Agent (RTA).

• The application for ISIN, which uniquely identifies each security, is processed by the RTA and typically takes about a month.

Step 2- KYC Updation

• Once the application is processed the Company needs to update KYC and other Company related Details.

Step 3- Transfer of Physical Shares

• Shareholders must surrender their physical shares and then open demat account with the Registered Stockbroker post to which within a span of 15 to 30 days the shares are transferred to the respective accounts.

Material Impact and Costs respectively-

Penalty for Non-Compliance-

• • The Company will not be able issue/allot any type of securities
• • The security holder will not be able to transfer or subscribe for any type of security
• • Monetary Penalty on company and every officer in default:
• • On Company: Rs 10,000+ 1,000 per day till violation continues. Maximum limit 2,00,000
• • Every officer of the company in default – same as above. Maximum Limit 50,000

Additional MCA Compliance-

• • The Company must file PAS-6 “Reconciliation of Share Capital Audit Report” form with ROC Half Yearly within specified due dates*.
• • Here the details of company’s capital such as shares held in demat form in NDSL, CDSL, Physical form and difference in capital are reported.
• • It must be certified by practising Company Secretary or Chartered Accountant.
• • *Due Date- withing 60 Days from end of half year
• • For instance, half year ended 30 Sept 2024 then due date is 29 November 2024 and half year ended 31 March 2025 then due date is 30 May 2025