In recent years, the Ministry of Corporate Affairs (MCA) has extended dematerialization requirements to private companies, bringing them closer to the standards for public companies. This move, introduced through Rule 9B, is aimed at improving transparency, curbing fraud, and enhancing investor trust. Many private companies are still unfamiliar with the exact rules, which can lead to confusion or penalties. Hereās a complete breakdown.
1) Applicability of Dematerialization Rules
Private companies often assume that demat applies only to listed or large public companies. However, Rule 9B makes it mandatory for most private companies (other than āsmallā and government companies) to dematerialize existing shares and handle all future issues and transfers only in demat form.
If an exempt small company crosses the prescribed thresholds (ā¹4 crore paid-up capital or ā¹40 crore turnover), a compliance clock starts. This 18-month period to complete dematerialization doesn't begin on the day the limit is crossed, but from the end of the financial year in which it happened. For example, if a company crosses the turnover limit in December 2024, its 18-month compliance window begins on March 31, 2025.
2) ISIN Creation and Depository Agreements
Dematerialisation isn't possible without an ISIN (International Securities Identification Number). To get one, companies must appoint a SEBI-registered RTA, pass a board resolution, and execute a tripartite agreement with a depository (NSDL or CDSL) and the RTA. The RTA coordinates the entire submission. Without an ISIN, no share transfers, demat requests, or corporate actions can be processed.
3) Ongoing Reconciliation and Filings (PAS-6 & Others)
Maintaining demat compliance requires ongoing reconciliation of your company's share capital with depository records. For private and unlisted public companies, the key filing is Form PAS-6, a half-yearly Reconciliation of Share Capital Audit Report. Listed companies adhere to stricter timelines, submitting a similar quarterly reconciliation audit to the stock exchanges under SEBI regulations. Errors or late filings for any of these attract penalties.
4) Shareholder KYC and Data Collection
One of the biggest challenges for private companies is outdated shareholder data. Since dematerialization requires valid KYC for every folio, incomplete data can block demat requests. Companies should proactively run KYC update campaigns with the help of their RTA, ensuring all shareholders provide PAN, Aadhaar, and bank details well before compliance deadlines.
5) Impact on Corporate Actions and Fundraising
Without dematerialization, companies can't smoothly conduct rights issues, bonus issues, or private placements, as depositories won't process physical share certificates. This directly affects fundraising and corporate flexibility. Timely dematerialization not only ensures compliance but also builds credibility with investors, banks, and regulators.
6) Investor Confidence and Transparency
Beyond compliance, dematerialisation offers practical advantages. It reduces risks of forgery or theft of share certificates and ensures faster, more secure transfers. Investors, especially institutional ones, prefer companies with dematerialised shares because it reflects good governance and operational discipline.
Conclusion
Dematerialisation is no longer optional for most private companiesāit is a regulatory requirement under Rule 9B and a step toward modern governance. From ISIN creation to reconciliation filings, every stage requires careful planning. With penalties for non-compliance, companies must act early and stay proactive.
At Nextgen Share Registry Pvt Ltd (Nextgen RTA), we assist private companies end-to-end with dematerialisation. With our expertise, you can stay compliant, investor-ready, and fully prepared for future growth.
ABOUT NEXTGEN
At NextGen Share Registry, we specialize in ISIN generation for equities, preference shares, debentures, and AIFs with unmatched speed and accuracy. Our expertise extends to handling complex corporate actions and seamlessly organizing e-voting events for issuer companies, ensuring a hassle-free experience with the fastest turnaround time in the industry.