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Issue of securities in dematerialized form by unlisted public companies

  • Admin
  • 06 Mar, 2020

Ministry of Corporate Affairs vide its Notification dated 10th September 2018 had amended Companies (Prospectus and Allotment of Securities) Rules, 2014. By virtue of this amendment, all unlisted public companies are required to issue/ transfer securities in demat form only and also to dematerialise the existing securities, w.e.f. 2ndOct. 2018, as a measure to enhance transparency, investor protection and corporate governance standards, etc

Now the unlisted public companies are required to facilitate dematerialisation of their existing securities, further issue/ transfer, etc. in coordination with Depositories and Share Transfer Agents. Any grievances arising out of such dematerialization of securities will be handled by the Investor Education and Protection Fund authority.

Every unlisted public company shall ensure that

·       It maintains security deposit of not less than 2 years’ fees with the Depository, registrar to an issue and share transfer agent;

·       The audit report shall be submitted by the unlisted public company on a half-yearly basis to the Registrar.

Analysis

a)      Shares in dematerialized form eliminates the risks associated with physical certificates such as loss, theft, mutilation, fraud etc.

b)     Dematerialization would strengthen corporate governance system to fight against benami shareholding and back dated issuance of shares, etc.

c)     Corporate restructuring involving share transfer would be more cost effective since there is an exemption from payment of stamp duty on transfer of shares in dematerialized form.

Conclusion

Dematerialisation is a welcome step towards digitalization and this is the first stage wherein only unlisted public companies have been covered. As a next step, the Ministry of Corporate Affairs is expected to cover private companies as well which would be a major step in Indian regulatory framework. Although public companies may not find the dematerialization a stringent rule to follow, private companies which are small in size or do not have significant financial transactions may find it costlier affair.    

For more information or clarification or suggestions please contact us at legal@corpcode.in

 

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