Private companies to have shares in demat form 

In a move that is expected to bring greater transparency in the shareholding pattern of private companies, the Ministry of Corporate Affairs has come with far reaching guidelines under which such companies will have to dematerialise their shares by September 2024. 

In a new notification, the MCA has said every private company, other than a small company, will issue the securities only in dematerialised form; and facilitate dematerialisation of all its securities. 

Private companies that are not small companies, as on March 31, 2023, have an 18-month period to comply with the norms or until September 2024.   

According to the MCA notification, any company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer, after the date when it is required to comply with this rule, would have to ensure that the entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised. Further, persons holding securities of private companies would also have to get the shares dematerialised. 

Nitesh Mehta, Partner, M&A Tax, BDO India said the move enables digitisation of securities mostly across spectrum of corporate entities, except for small companies. “It is important to note that dematerialisation requirement is applicable to all securities be it equity shares, preference shares, debentures, warrants,” he further said.  While this amendment would require certain process to be followed by private companies as well as their shares and security holders, it would be applicable post September 2024 which gives sufficient time. 

The MCA had way back in 2018 said that unlisted private companies should issue shares in demat form.