Issue of securities in dematerialised form by Private Companies

Rule 9B: Issue of securities in dematerialised form by Private Companies 

(1) Every private company, (other than a small company), shall within the period referred to in sub-rule (2) - 

      (a) issue the securities only in dematerialised form; and 

      (b) facilitate dematerialisation of all its securities, 

in accordance with provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder.

• What is dematerialisation of shares?

Dematerialisation is the process by which a shareholder can get physical certificates converted into electronic balances. Every company, who want to dematerialised their share, have to get International Securities Identification Number (ISIN) and then, the shareholder would be able to dematerialised their shares with any DP after opening a demat Account. The shareholder has to deface and surrender the certificates registered in its name to the DP.

• Whether Rule 9B (Dematerialisation) applies to all private limited companies?

No, this rule does not apply to a private limited company, who satisfy the conditions for a “Small Company”.

• Which company should be treated as “Small Company”?

"Small Company” means a private limited company, who is satisfying both the below mentioned conditions; 

1. paid-up share capital of which does not exceed Rs. 4 Crores; and
2. turnover of which, as per its last profit and loss account for the immediately preceding financial year, does not exceed Rs. 40 Crores.

Furthermore, a holding company, or a subsidiary company, or a company registered section 8 shall not be considered as a Small Company in any case.

• What is the time limit to make these dematerialisation compliances as specified in Rule 9B?

A private company, which is not a small company as per audited financial statements for such financial year 2022-23, shall, comply with the provisions of this rule within eighteen months of closure of such financial year, i.e. for this financial year 2022-23, the last date is 30th September, 2024.

• What are the other benefits to “Small companies”?

1.  A Small company may not include Cash Flow Statement as part of its financial statement. 
2. The Annual Return of a Small company not required to be signed by the Company Secretary.
3. A Small company may hold only 2 board meeting in a year; (at least 1 meeting in each half of the calendar year and the gap between the 2 meetings is not less than 90 days).
4. Provision regarding mandatory rotation of auditor (maximum term of the auditor for 5 or 10 years) is not applicable on Small companies. 
5. A Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A instead of MGT-7.
6. Lesser penalty is payable for non-compliance of any of the provisions of this Act by a Small company, or by any of its officer in default, or any other person in respect of such company.