In a significant development, the Ministry of Corporate Affairs (MCA) introduced an amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014, on October 27, 2023. This amendment, known as the Companies (Prospectus & Allotment of Securities) Second Amendment Rules, 2023, introduces a mandatory requirement for the dematerialization of securities issued by private limited companies, excluding small companies.
A Sub-rule 9B has been inserted via the notification stating the mandate on Dematerialization of securities issued by the Private Limited Companies (Other Than Small Companies).
Let’s Understand The Structure of Private Companies For this Purpose:-
Any Company (Existing or New incorporated) which is not a small Company based on Monetary limits shall be required to Comply with the Mandatory Dematerialization of Securities within 18 months form the 31st March, 2023 i.e, Due date 30.09.2024
Every Private company (Other Than Small Company) shall Provide facility for the Dematerialization to the existing shareholders in case they wish to Transfer the securities or where the company intends to issue new securities onwards.
Note: It is not Mandatory to Demat the securities if No Transfer of Securities takes place or the company is not planning to issue New Securities
♦ A Company which is a newly incorporating company (not as a small Company) shall issue securities in Demat only against the subscribed capital.
♦ A Company which is a newly incorporating company (as a small Company) shall not require to issue securities in Demat against the subscribed capital.
FAQ
Q.1 Whether the Section 8 Company is required to Comply with mandatory Dematerialization?
Ans: Yes, Regardless of Paid-up Capital or Turnover section 8 Co. are out of the ambit of small company definition. It is mandatory to Convert the Existing shares into Demat within the due date.
Q.2 Whether a Company with Holding -Subsidiary Relationship is required to Comply with mandatory Dematerialization?
Ans: Yes, Regardless of Paid-up Capital or Turnover. It is mandatory to Convert the Existing shares or New Shares (In case a New Company is Incorporating) into Demat within the due date.
Q.3 Whether a Company governed under a Special Act is required to Comply with mandatory Dematerialization?
Ans: Yes, Regardless of Paid-up Capital or Turnover Company governed under a Special Act are out of the ambit of small company definition. It is mandatory to Convert the Existing shares or New Shares (In case a New Company is Incorporating) into Demat within the due date.
Q.4 Is it Mandatory to Convert all the existing securities into Demat for a Private Limited Company (Other than Small Company)?
Ans: No, the Reason behind is the amendment Clearly states to Provide the facility only for Dematerialization the holding in 2 Cases (Issue of New securities or Transfer of Securities). Unless The company is doing the 2 transactions it is not required to Comply with the Notification.
This amendment marks a crucial development in the regulatory landscape for private companies in India, emphasizing the move towards digital securities management. It is essential for affected companies to adhere to the specified timelines and provisions.
Author Bio
Insightful Details of about new notification.
FAQ’s helped alot to understand more about the new rule.
Indeed a great article to read.
Thank you so much Mukul Sir for the detailed analysis of the notification issued by MCA on 27th October, 2023. It is very helpful to me.