Introduction: In a significant move, the Ministry of Corporate Affairs, through the Companies (Prospectus and allotment of securities) Second amendment Rules, 2023, has introduced a comprehensive notification on the dematerialization of securities for both public and private companies. This article delves into the specific implications for private companies, detailing the process, requirements, and timelines.
> PRIVATE COMPANY
Every Private Company which is not a small company, shall from now onwards issue securities only in dematerialised form and further dematerialisation of all its securities shall be in accordance with the provisions of Depository act, 1996 and related regulations as discussed further in this article.
A Private company which as on financial year ending 31st March, 2023 is not a Small company (Which means a company whose Paid up share capital is more than 4 Crore and its Turnover is more than 40 Crore) as per the audited financial statements for such financial year shall within 18 months of commencement of this rule shall comply with the provision of this rule.
Any Private company making any offer for issue of any securities, Buy Back, Bonus Issue or Right issue, after the commencement of this rule is required to ensure the entire holding of Directors, Promoter or Key managerial Personnel should be in dematerialise Form.
Every holder of securities of Private company
1. Who intends to transfer the share on or after the date is required to comply with this rule such person is required to get such securities in demat form before such transfer.
2. Any person who subscribes to any securities of Private company (Except Small Company) shall ensure that all his securities are held in Dematerialised Form.
PROCESS FOR DEMATERIALISATION:-
Dematerialisation in general terms known as a process through which physical shares can be converted into electronic shares.
As with effect from 27th October, 2023 Dematerialisation is mandatory for all Private companies except Small Companies all Directors, Promoters and Key Managerial Personal is required to have an account with the Depository Participant.
Provided only those securities that are registered in the name of account holder can be dematerialised with the following process:
1. The registered owner of the securities is required to submit a Dematerialisation Request Form to Depository Participants (DP) along with the share certificates which requires to be dematerialised which should be defaced by writing “SURRENDERED FOR DEMATERIALISATION” on it.
2. The said DP will verify the form filled, number of share certificates, type of security and other relevant details and issue an acknowledgement slip duly signed and stamped to the registered owner.
3. Further DP will scrutinize the application on different grounds which includes:
a. Verification of signatures
b. Compare of Names
c. Paidup status
d. Distinctive numbers Etc.
4. In case the securities are in order of the requirements a Dematerialisation Request Number (DRN) will be generated by the system, which will be entered in the request form as mentioned in point 1.
5. After completing relevant procedures the DP will dispatch the certificates along with the Request form to the R&T Agent/ Issuer of securities.
6. The Issuer/ R&T agent confirms acceptance of the request for dematerialisation in his system and the same will be forwarded to the Depository Module (A software System), if the request is found in order.
7. The Depository Module will electronically authorise the creation of appropriate credit balances in the registered owners account which completes the process for Dematerialisation.
The issuer/ R&T may reject dematerialisation request in some cases by sending an objection memo to the DP along with the reason. The objections shall be removed by the DP/ Investor within 15 days of receiving the objection memo, and if DP fails to do the same. The issuer/ R&T may reject the same and return the request form and certificates to DP. If registered owner required a new request is required to be generated.
> PUBLIC COMPANY
- If a public company has issued share warrants prior to the commencement of the Companies act, 2013 and those warrants has not been converted into shares till date then the same share warrants shall be:
a. Within 3 months of commencement of this Rule i.e., 27.10.2023 is required to inform the Registrar about the details of such share warrants in form PAS-7 .
b. Within 6 months of the rule the Bearer of the share warrants are required to surrender such share warrants to the company in order to get their shares in Dematerialization form in their account.
For the purpose of converting the share warrants in Dematerialization form the company shall place the notice on the website in form PAS-8, If any and shall also publish the same in a newspaper which is being circulated in the district and in English newspaper which is widely circulated in the state in which the registered office of the company is being situated.
In case any bearer of the share warrant does not surrender the share warrant in the given period i.e Six Months then the company shall convert the same in dematerialize form and transfer the same to the Investor education and protection fund.
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