Mandatory Dematerialization for Securities of Private Companies: Know More

India is advancing its financial markets integrity as the Corporate Affairs Ministry (MCA) now requires private companies to dematerialize their securities, marking a significant step forward.”

The latest amendment from the MCA states that, except for small and government companies, all private companies must issue new securities solely in dematerialized form. private company are required to enable dematerialization of existing securities, with a compliance deadline set until the end of September 2024.

MCA has clearly stated that after September 30, 2024, no private company can issue or buy back securities until the holdings of its promoters, directors, and key managerial personnel are dematerialized

Starting September 30, 2024, anyone wanting to transfer securities in a private company must dematerialize them first. Additionally, any subscriptions to securities in a private company, like through private placement or bonus shares, after this date, can only happen if the securities are already in dematerialized form, according to MCA. Switching to digital shares for public companies started in 1996 with NSDL

The Makarand M Joshi, Founder of MMJC & Associates, a corporate compliance firm, hailed MCA’s decision to push dematerialization for certain private companies, calling it a crucial move for financial market integrity, its role in improving India business environment and curbing fraudulent activities related to physical shares

Smaller private companies, with capital and turnover below specified threshold, as well as those not holding subsidiary companies, are exempt from this dematerialization requirement.

The dematerialization of shares for public company started in 1996. with the establishment of the National Securities Depository Limited (NSDL).

Dematerialization transformed how shares were managed and traded in Indian market making things smoother, fairer, and more accessible for investors. It marked a big step forward for India’s financial markets

This change brought many advantages, like getting rid of paper certificates, making transactions faster and cheaper, cutting down on paperwork, and connecting with electronic trading. It also helped more people join in investing, made it easier for regular investors to take part, and lowered the chances of fraud and fake documents.