The government has told all private companies, excluding small ones, to convert their shares into electronic form (dematerialise) by September 30, 2024. This move is aimed at improving transparency and oversight in the financial system.
In an amendment dated October 27, the Ministry of Corporate Affairs (MCA) introduced a new clause in the Companies (Prospectus and Allotment of Securities) regulation. This clause mandates that every private company, except small ones, must issue securities only in dematerialised form and facilitate the dematerialisation of all its securities. This process should align with the provisions of the Depositories Act, 1996, and related regulations.
Presently, listed companies, under the regulation of the MCA and the Securities and Exchange Board of India (SEBI), are already required to dematerialise their equity shares. While investors are currently allowed to hold shares physically, any share transfer requires conversion from physical to electronic form. Similarly, ‘unlisted public companies’ must also dematerialise their shares for corporate actions like buyback, or issuing bonuses or rights shares.
Experts note that ‘unlisted private companies’ constitute the largest portion of registered companies. As of January, approximately 1.4 million companies registered with the MCA, comprising 95% of active registered companies, were private. However, only around 50,000 of these are estimated to be ‘small companies.’
In summary, this government directive signifies a broader push towards digitisation in the financial sector, promoting electronic securities and enhancing regulatory control, with a significant impact on the majority of private companies in the country.
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