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The Government of India has issued a mandate to private companies for the compulsory dematerialisation of their physical shares by June 30, 2025 (prev Sept 30, 2024). In simple terms, private companies (except small) will have to convert all issued physical share certificates into digital form. Learn more here.
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EquityList Team
March 25, 2024
July 12, 2025
Table of Contents
In October of 2023, the Ministry of Corporate Affairs (MCA) amended the Companies (Prospectus and Allotment of Securities) Rules 2014 (PAS Rules) via the Companies (Prospectus and Allotment of Securities) Second Amendment Rules 2023 (PAS Amendment Rules) by adding rule 9B.
This new rule mandates dematerialisation for all private companies excluding small companies and government companies.
We have also hosted a webinar on this latest dematerialisation mandate in collaboration with the Offline Team.
Dematerialisation of securities is the process of converting physical share certificates and other investment documents into an electronic format. These electronic holdings are then stored in a demat account, managed by a depository.
In India, there are two depositories registered with SEBI:
NSDL and CDSL are both safe custodians for your dematerialised securities in India. Depending on who your Depository Participant (DP) i:e bank or broker, is registered with, your demat account will be held with either NSDL or CDSL.
Prior to the Ministry of Corporate Affairs (MCAs) Rule 9B, dematerialisation of shares was optional for private companies. It was mandated only for publicly traded companies and some large private companies.
This meant most private companies in India relied on physical share certificates — a system vulnerable to loss, theft, and forgery. All private companies are now required to convert their existing physical certificate to electronic certificates by June 30, 2025 (prev Sept 30, 2024), and only issue shares electronically going forward.
Rule 9B discusses the issue of securities in dematerialised form by private companies and states that:
1. Every private company, other than a small company, shall
a. Issue the securities only in dematerialised form and
b. Facilitate dematerialisation of all its securities
per provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder. A small private company is referred to as a company with a paid-up capital of less than ₹4 crore and a turnover of less than ₹40 crore.
2. If a private company isn't considered small based on its financial records at the end of a financial year ending after March 31, 2023, it must follow these rules within 18 months after the end of that financial year.
3. Any private company as specified above, when making offers for issuing securities, buying back securities, issuing bonus shares, or offering rights after it needs to follow this rule, must ensure that all securities held by its promoters, directors, and key managerial personnel have been dematerialised as per the rules of the Depositories Act, 1996 (22 of 1996), and related regulations before making such offers.
4. Every holder of securities of the private company referred to in sub-rule (2),-
a. Planning to transfer these securities should dematerialise them before the transfer.
b. Similarly, anyone subscribing to securities of the private company through private placement, bonus shares, or rights offered after this rule applies to the company must make sure their securities are dematerialised before subscribing.
5. The rules from (4) to (10) of rule 9A will apply accordingly to the dematerialisation of securities under this rule.
6. The provisions of this rule shall not apply in the case of a government company.
Dematerialising the shares of private companies is expected to streamline share management and enhance security for both, companies and investors. It could also potentially improve liquidity within the private securities market.
Read the MCA rule 9B circular.
The Ministry of Corporate Affairs (MCA) has extended the deadline for dematerialisation of shares by private companies from September 30, 2024, to June 30, 2025.
This extension applies to all private companies except:
a. Small companies (i.e., those with paid-up capital less than ₹4 crore and turnover less than ₹40 crore)
The exemption for small companies does not apply to the following:
If your company falls into any of these categories, it must dematerialise shares by June 30, 2025, regardless of its paid-up capital or turnover.
b. Government companies
Important: Companies that have raised capital from an Alternative Investment Fund (AIF) must comply regardless of their size, even if they otherwise qualify as a small company.
In a related move, SEBI has introduced updated rules for dematerialisation in the context of AIF investments:
In these cases, dematerialisation must be completed by October 31, 2025 (the earlier deadline was January 30, 2025).
Now that you understand the rule for dematerialisation, let us take you through the detailed process of complying with it.
Your company's AoA needs to be updated to authorize shareholders to hold shares in dematerialised form. This may involve legal assistance.
You need to appoint a SEBI (Securities and Exchange Board of India) registered independent Registrar and Transfer Agent (RTA). They will act as intermediaries between the company and the depositories (CDSL or NSDL).
Apply for an ISIN number for each type of share your company has issued (e.g., common stock, preferred stock). This unique code identifies your company's securities globally.
The company needs to open a Demat account with a Depository Participant (DP). DPs are usually banks or brokerage firms authorized to facilitate dematerialisation.
Facilitate the conversion of existing physical share certificates held by shareholders into electronic form through the DP. This may involve shareholders submitting their physical certificates to the DP.
Ensure all promoters, directors, and KMPs hold their shares in dematerialised form before issuing any new securities. They need to link their Demat accounts with the company and have their shareholdings electronically credited to them.
You are now required to submit half-yearly returns in the form of PAS 6, notifying the Ministry of Corporate Affairs of the dematerialisation details.
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In the entire dematerialisation process, you will come across three key players who work together to manage and track ownership of dematerialised shares - depositories, depository participants and RTAs.
A depository is either National Securities Depository Limited (NSDL) or Central Depository Services (India) Limited (CDSL) in India. They act as a central electronic repository for holding securities in digital format.
They maintain accounts for Depository Participants (DPs) and their clients (beneficial owners). They also electronically settle trades and transfer securities between DPs and ensure safekeeping and record-keeping of dematerialised securities
They act as an intermediary between the depository (NSDL or CDSL) and investors. It could include banks and brokerage firms. Depository participants open demat accounts for investors to hold their securities electronically. They allow the buying and selling of securities through the depository and provide account statements and other services to investors.
They are appointed by the issuing company (whose shares are being held) to manage the company's shareholder records. They maintain records of shareholders and their holdings and process corporate actions like bonus issues, stock splits and dividend payments.
They act as a liaison between the company and the depository.
In short, the depository acts as the core infrastructure, holding the electronic records of securities. DPs act as access points for investors, allowing them to buy, sell, and hold their securities electronically. RTAs are responsible for maintaining accurate shareholder records and working with the depository to ensure smooth processing of corporate actions.
Opening and maintaining demat accounts involve fees.
You'll need KYC (Know Your Customer) documents and a PAN card (tax identification number) for the company and its shareholders for the dematerialisation process.
The Companies Act requires companies to alter Articles of Association (AoA) for any issue of shares. The risk here is that DP is not restricted by these rules, and may directly act upon the executed Delivery Instruction Slips (“DIS”) submitted by the transferor and process the demat share transfer requests, without confirming AoA amendments.
Hence- it is recommended that the private companies put in place adequate checks and filters at the depository’s level (for example, freezing of ISIN) and/or they should inform the DPs, as practically as possible, about the legal restrictions in the charter documents and that, the DPs is bound to act strictly as per those AoA restrictions/procedures prior to processing any share transfer requests.
With a total of 24,61,937 registered companies in India, depositories could face challenges in managing the high volume of applications they receive for dematerialisation. Expect potential delays in processing, so it's advisable to initiate the process as early as possible to avoid any inconvenience.
While there are no specific penalties for non-compliance with Section 29 of the Companies Act, which addresses the dematerialisation mandate along with Rule 9B of the PAS Rules, it's important to note that the general penalties outlined in Section 450 of the Companies Act could potentially be applicable in this scenario:
EquityList is a cap table management solution that allows start-ups to issue and track their shares, grant equity compensation and avail compliance and advisory services.
We work with 300+ startups including companies like Cars24, Slice, Shiprocket, Blackbuck and smallcase.
Since the Ministry of Corporate Affairs (MCA) required private companies to dematerialise their shares, we've been striving to make the process quicker and easier for our clients. The only thing you have to do is make sure all your equity and shareholders data is available on the EquityList platform.
If you are not a user already, you need to sign up on our platform and add all information related to your cap table and shareholders. That’s it! Your job ends here, and ours starts.
What we then do is:
Partner with a reputed RTA to carry the process on behalf of our clients and make them compliant with the new rules in 2-3 weeks.
This includes all the following services:
For amending the Articles of Association (AoA), board resolutions and shareholder resolutions for dematerialisation - e- signature is integrated into our product. So all the early requirements from the Depository Participant can be executed quickly.
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Check out Dematerialisation as a service on EquityList.
Dematerialisation refers to converting physical share certificates into electronic form and holding them in a demat account.
Up until now, private companies would give physical share certificates to their shareholders. However, after MCA’s amendment to the PAS Rules 2014, they are now mandated to convert these physical certificates into digital form through dematerialisation. It allows the conversion of physical share certificates into electronic form and stores it in your demat account. This is very similar to holding money digitally in a bank account.
Dematerialising private company shares requires updating legal documents, appointing an RTA, obtaining unique security codes, and opening Demat accounts for the company and individual shareholders. Existing physical certificates are converted to electronic holdings, with mandatory dematerialisation for key personnel. Finally, regular reports are submitted to the government. This multi-step process ensures secure and efficient share management.
To understand the detailed process, read our blog above.
Yes. In October of 2023, the MCA updated PAS Rules 2014 and added a new provision that mandates all private companies except for small companies to dematerialise their shares by June 30, 2025 (prev Sept 30, 2024). Going forward these companies will only issue share certificates in dematerialised form.
Dematerialisation of private limited company shares refers to the process of converting physical share certificates into an electronic format. This means that instead of holding paper documents as proof of ownership, shares are stored in a demat account.
Rule 9B, introduced in the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, governs the mandatory dematerialisation of shares in private companies. It aims to achieve complete dematerialisation of shares in non-small private companies, enhancing security, efficiency, and transparency in shareholding management.
Rule 9B mandates most private companies in India to convert physical share certificates to electronic form by June 30, 2025 (prev Sept 30, 2024). This means existing paper shares must be dematerialised and future issuances will be electronic only.
Yes, the dematerialisation of shares is mandatory for most private companies in India.
Rule 9B dictates that companies must convert their existing physical shares to electronic form and future issuances must be electronic only. This applies to all private companies except those classified as "small" based on a specific financial threshold. The deadline for completing this process is June 30, 2025 (prev Sept 30, 2024). This shift aims to improve security, efficiency, and transparency in shareholding management.
Dematerialising physical shares in a private limited company requires a coordinated effort. The company first appoints a SEBI-registered Depository Participant (DP). Shareholders are then informed about the process and deadlines. They submit their physical certificates along with a dematerialisation request form to either the company or the chosen DP. After verifying the details and authenticity of the certificates, the DP electronically credits the corresponding shares into the shareholder's demat account.
A depository acts like a bank for your securities. It holds your shares and other financial instruments electronically safely and securely. Whereas, dematerialisation is the process of converting your physical share certificates into electronic form.
Dematerialisation turns physical shares into digital holdings, like depositing cash in a bank. Rematerialisation does the opposite, it converts electronic shares back to paper certificates, similar to withdrawing cash.
The deadline for dematerialisation is June 30, 2025 (prev Sept 30, 2024), for existing non-small companies. However, companies exceeding the "small company" criteria after March 31, 2023, are provided an 18-month window from their financial year-end to comply.
All private companies are mandated to comply with the rules of dematerialisation by June 30, 2025 (prev Sept 30, 2024).
Absolutely! Dematerialisation merely converts physical securities (shares) to a digital holding and directly stores the securities into the shareholder’s demat accounts. Post dematerialisation, you’ll still need to manage your cap table to track ownership, issue equity grants as part of your ESOP/SAR/RSU pools, store investment documents, model fundraising simulations, and provide dashboards to your shareholders.
The cost of dematerializing shares of private companies involves two main types of charges:
Additionally, the company must pay a security deposit to the Depository (either CDSL or NSDL).
Reach out to us to know more.
Yes, an International Securities Identification Number (ISIN) is mandatory for private companies that wish to dematerialize their securities. The ISIN serves as a unique identifier for the securities and is required to facilitate the electronic trading and settlement of shares in the dematerialized form.
While the dematerialization process is primarily managed by the company, shareholders play a crucial role. Their responsibilities include submitting the dematerialization request form, and handing over the physical share certificates. For a comprehensive overview on the dematerialization procedure, please refer to the detailed blog post above.
The dematerialization process typically takes around 3 to 4 weeks to complete.
Although there isn't a specific agent solely dedicated to the dematerialization process, EquityList, as a cap table management software, simplifies the procedure.
You can share essential company details such as AoA, PAN information, and cap table data, including shareholder details and share classes with us on the EquityList platform.
Upon your request, we will use this information and initiate the necessary steps to dematerialize your shares. Through our partnership with reputable RTAs, we ensure a seamless process for obtaining ISINs and complying with the dematerialization mandate.
As per Section 2(85), Section 8 companies are not considered small companies, regardless of their paid-up capital or turnover. Hence they are required to comply with the dematerialisation rules.
A Section 8 company is a non-profit organization registered under Section 8 of the Companies Act, 2013, in India. Its primary objective is to promote activities such as arts, commerce, science, research, education, sports, charity, social welfare, religion, environmental protection, or other similar purposes.
Section 8 companies, along with public limited companies, holding or subsidiary companies, companies governed by a special Act, NBFCs, and Indian subsidiaries of foreign entities, are required to dematerialize their securities, irrespective of their paid-up capital or turnover.
P.S. The team at EquityList is available to assist you at every step, you can reach out to us over dedicated Slack channels and WhatsApp groups.
Disclaimer
The information provided by E-List Technologies Pvt. Ltd. ("EquityList") is for informational purposes only and should not be considered as an endorsement or recommendation for any investment, product, or service. This communication does not constitute an offer, solicitation, or advice of any kind. Any products, or services referenced will only be undertaken pursuant to formal offering materials, agreements, or letters of intent provided by EquityList, containing full details of the risks, fees, minimum investments, and other terms associated with such transactions. Please note that these terms may change without prior notice.EquityList does not offer legal, financial, taxation or professional advice. Decisions or actions affecting your business or interests should be made after consulting with a qualified professional advisor. EquityList assumes no responsibility for reliance on the information/services provided by us.
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