SEBI Proposes That KMPs Must Have Demat Accounts in IPOs

The Securities and Exchange Board of India (SEBI) has suggested that certain people in a company, including directors, Key Managerial Personnel (KMP), and current employees, must keep their shares in demat form before the company sells its shares to the public through an Initial Public Offering (IPO).

This will help in preventing problems linked to physical share certificates, like losing them, theft, fake documents, and delays in transferring shares. Currently, the Issue of Capital and Disclosure Requirements (ICDR) rules already mandate that company promoters must have their shares in demat form before submitting the IPO offer document.

Even though there are various regulations in place to encourage holding shares in demat form, many important pre-IPO shareholders like directors, Key Managerial Personnel, senior management, selling shareholders, and even Qualified Institutional Buyers (QIBs) still hold a large number of physical share certificates. This creates a gap in the regulations, allowing many physical share certificates to continue to exist even after the company is listed.

To solve the issues, SEBI has proposed to extend the current regulatory requirements.

SEBI has suggested that any company launching an IPO must make sure that shares held by the promoter group, selling shareholders, directors, key managerial personnel, senior management, Qualified Institutional Buyers (QIBs), domestic current employees and shareholders, with special rights are all in demat form before submitting the IPO offer document.

Furthermore, the board also recommended that the registered stock brokers, non-systemically important non-banking financial companies (NBFCs), and other regulated entities should keep their shares in demat form prior to the filing of the company’s IPO offer document by the company.

The Securities and Exchange Board of India (SEBI) has requested the public to provide their comments on this proposal by May 20, 2025.