-Every unlisted public Company shall issue securities only in dematerialized form and facilitate dematerialization of all its existing securities. [Rule 9A(1) of the companies (Prospectus and Allotment of Securities) Rules, 2014].
-A Private Company can also obtain DEMAT connectivity for the purpose of dematerialization of shares, with one of the depositories or with both provided the Articles of Association of the Company provide for the same.
-For the above said purpose, the Company shall obtain DEMAT connectivity (i.e., ISIN: International Security Identification Number) with the depositories registered with SEBI.
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Procedure:
Step 1: Hold a Board Meeting (Section 173 and SS-1):
Hold a Board meeting for following matters:
- To consider and approve the proposal for obtaining DEMAT connectivity and to appoint a Registrar and Transfer Agent (RTA)
- To authorize CS / any director (if there is no CS) of the Company to enter into an agreement with depository and/or RTA to obtain DEMAT connectivity.
Important Note- Listed or proposed listed Company is required to take DEMAT connectivity from both the depositories whereas unlisted Company can obtain from one or both the depositories.
Step 2: RTA Appointment:
Company is required to appoint RTA.
Important Note- Company can also obtain a software from depositories to manage the DEMAT connectivity if it doesn’t wish to appoint RTA.
Step 3: Agreements with Depository and RTA etc:
- Once the RTA is appointed, Company is required to file an application (along with relevant documents) with depository (ies) for obtaining DEMAT connectivity.
- Also, the Company, depository and RTA shall enter into Bipartite or Tripartite (as the case may be) agreement in respect of securities that are to be declared as eligible to be held in dematerialized form.
Important Note- No such agreement is required to be entered where the issuer of securities is State or Central Govt.
Step 4: Approval for DEMAT connectivity:
- Depository will verify the application and documents
- Then Depository will provide DEMAT connectivity to Company and allocate ISIN to the securities of the Company.
Source- http://ebook.mca.gov.in/default.aspx
https://www.sebi.gov.in/legal/regulations/oct-2018/securities-and-exchange-board-of-india-depositories-and-participants-regulations-2018_40631.html
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