Demat Provisions for Unlisted Public Companies

Government on 10^th September, 2018 notified Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 which will be applicable from 02^nd October, 2018.

Rule 9A: Issue of securities in dematerialized form by unlisted public companies

Every unlisted public company shall –

• Issue the securities only in dematerialized form; and
• Facilitate dematerialization of all its existing securities in accordance with provisions of the Depositories Act, 1996 and regulations made there under.

• All the unlisted Public Companies are mandated to offer demat facilities to the shareholders and take ISIN for each of the securities from depository.
• All the unlisted public Companies must enter into an agreement with Depository and Registrar and Share Transfer Agent for facilitation of demat facility.
• All the shareholders of unlisted public companies who want to transfer their shares will have to demat their shares.
• Anyone want to acquire shares of unlisted public companies must have demat account. (Effective from 02/10/2018)
• If such unlisted public company wants to issue right shares, bonus shares or buy back shares, entire shareholding of Promoters, Directors and KMP needs to be in demat form.
• Unlisted public Companies needs to file Share Reconciliation Audit Report half-yearly with RoC.

Important FAQs:

1. Is this provision applicable to Deemed Public Company i.e Private Companies being subsidiary of Public Company?

Yes. All the provisions of public company are applicable to Deemed Public Company also.

2. Whether any shareholder still can retain physical shares?

Yes. If any members wish to remain shares in physical form, he can retain it. But at the time of transfer of shares, he/she needs to convert it in demat form before transfer.

3. Is ISIN compulsory for company if all the shareholders want to keep shares in physical form?

Yes. Rules cast responsibility on companies to facilitate dematerialization. So, taking ISIN before 02^nd October, 2018 is must.

4. What if all the members and directors have physical shares and want to issue new shares/bonus shares/buyback of shares?

Company has to first convert entire holding of Promoters, Directors and KMPs in demat form before issue of new shares or buy back of shares.

5. From 02^nd October, 2018, Can public company issue shares in physical form if members want physical shares?

No. As per wording of rules, from 2^nd October, 2018, Companies must have to issue Securities in demat mode.