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Mandatory Demat Registration of Private Companies / Obtaining ISIN

Mandatory Demat Registration of Private Companies

In India, the Securities and Exchange Board of India (SEBI) has mandated, effective from 27th October 2023, through the Companies (Prospectus and Allotment of Securities) Second Amendment Rules 2023 (PAS Amendment Rules), that all private companies must dematerialize (demat) of their securities and obtain an International Securities Identification Number (ISINs). This regulatory move aims to improve the functioning of the new economy, increase transparency, increase job security, and change the process. Let’s move on to the details of demat registration and ISIN given to private companies.

Understanding Demat Registration

Dematerialization is the process of converting physical share certificates into electronic form.

These electronic holdings are then stored in a demat account and managed by a depository.

In India, there are two depositories registered with SEBI, namely NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services (India) Ltd.)

In this context, securities include any shares, stocks, bonds, debentures, debenture stock, or other marketable securities of a similar nature.

To whom does this new requirement apply?

Applicability and non-Applicability of Rule 9 of Companies (Prospectus and Allotment of Securities) Rules, 2014

  1. Non-Applicability: It’s essential to understand that the requirement for the dematerialization of securities does not apply to specific types of companies. These exempt categories include:

Nidhi Companies: These are companies involved in mutual benefit activities.

Government Companies: Companies where the majority stake (more than 50%) is held by the government.

Wholly Owned Subsidiary Companies of Public Companies: Companies where all shares are held by a single parent public company.

Small Private Limited Companies: As per the Companies Act 2013, these are defined as companies with a paid-up share capital not exceeding a certain threshold and turnover not exceeding a prescribed amount.

  1. Applicability: The new regulations under Rule 9 are applicable to specific categories of companies:

Public Limited Companies: These regulations have been applicable since October 2, 2018, mandating such companies to dematerialize their securities.

Non-Small Private Limited Companies: Starting from September 30, 2024, these regulations will be applicable to non-small private limited companies. Non-small private limited companies are those whose paid-up share capital and turnover exceed the thresholds defined under the Companies Act,


Definition of “Small Company”

According to Indian corporate law, a “small company” is defined as follows:

  • A company that is not a public company.
  • Paid-up share capital does not exceed Four Crore rupees or such higher amount as may be prescribed.
  • Turnover, as per the profit and loss account for the immediately preceding financial year, does not exceed Forty crore rupees or such higher amount as may be prescribed.
    However, this definition does not apply to:

    • A holding company or a subsidiary company.
    • A company registered under Section 8 of the Companies Act, 2013.
    • A company or corporate body governed by any special Act.

This definition is crucial for determining the regulatory requirements and exemptions applicable to companies based on their size and financial metrics.

MCA’s 9B Rule Explained

Before the introduction of Ministry of Corporate Affairs (MCA) Rule 9B, the dematerialization of shares was not mandatory for private companies in India. This requirement was primarily imposed on publicly traded companies and some larger private entities. Consequently, many private companies continued to rely on physical share certificates, which posed risks such as loss, theft, and forgery.

However, with the implementation of MCA Rule 9B, all private companies (other than small companies) are now mandated to convert their existing physical share certificates into electronic form by September 30th, 2024. Moving forward, these companies must issue all new shares in electronic, dematerialized form. This regulatory shift aims to enhance security, transparency, and efficiency in the management and trading of securities.

Effective from September 30th, 2024, every non-small private company is required to:

  • Issue all its securities exclusively in dematerialized form.
  • Ensure the dematerialization of all existing securities held by the company.

What is the deadline for compliance?

Private companies in India must dematerialize their securities within 18 months from the end of their financial year ending on or after March 31, 2023. This means:

If a company’s financial year ends on March 31, 2023, it must complete dematerialization by September 30, 2024.

For companies whose financial year ends on December 31, 2023, dematerialization must be completed by June 30, 2025.

Dematerialization involves converting existing physical share certificates into electronic form, as mandated by SEBI and the Ministry of Corporate Affairs. This transition enhances security, transparency, and efficiency in managing securities, aligning with global standards and regulatory requirements.

Parties involved in the Dematerialization of Shares

  • Issuer Company
  • Shareholders [Beneficial Owner]
  • Depository Participant (DP)
  • Registrar and Transfer Agent (RTA)
  • Depository, i.e., CDSL or NSDL [Registered Owner]

A. Major Impact of Dematerialization on the Company:
I. After October 2, 2018, unlisted public companies in India are required to ensure that all securities held by their promoters, directors, and key managerial personnel (KMP) are in dematerialized form. Failure to comply with this requirement restricts the company from performing the following actions:

  • Issuing securities,
  • Conducting buy-back of securities,
  • Issuing bonus shares, and
  • Conducting rights issues.

II. Starting from September 30, 2024, all new issuances and transfers of securities by non-small private companies in India must be exclusively in dematerialized form. This regulatory mandate marks a significant shift towards electronic securities management, enhancing transparency and efficiency in capital market operations.

B. Impact on Security Holders (Transfer/subscription of Securities):

According to Sub Rule 4 of Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, every holder of securities must adhere to the following provisions:

Transfer of Securities:

Any holder intending to transfer securities on or after September 30, 2024, must ensure that these securities are dematerialized before initiating the transfer. This requirement applies to both buyers and sellers in any securities transaction.

Subscription to Securities:

Individuals intending to subscribe to securities issued by a private limited company must verify that all their existing securities are already held in dematerialized form. This precondition must be fulfilled before participating in any subscription or allocation of new securities.

Step-by-Step Process for Dematerialisation of Shares by Private Companies

Step 1: Updating Articles of Association (AoA) for Dematerialization

To comply with Rule 9B of the Companies Act, 2013, your company’s Articles of Association (AoA) must be updated to authorize shareholders to hold shares in dematerialized form. This process may necessitate legal assistance to ensure compliance with regulatory requirements and facilitate the transition to electronic securities management.

Under Rule 9B, it is mandatory for non-small private limited companies to provide shareholders with the opportunity to convert their shares into dematerialized form. This includes applying for an International Securities Identification Number (ISIN) on or before September 30, 2024. The ISIN is a unique code that identifies a company’s securities globally, facilitating their electronic trading and management through registered depositories like NSDL or CDSL.

Step 2: Appointment of SEBI Registered Registrar and Transfer Agent (RTA)

Your company must appoint a SEBI-registered Registrar and Transfer Agent (RTA) to manage interactions with depositories like CDSL or NSDL. The RTA plays a crucial role in issuing and maintaining ISINs for your company’s securities, ensuring compliance with regulatory standards, and facilitating efficient electronic trading.

Step 3: Obtaining International Securities Identification Number (ISIN)

Understanding ISIN

The International Securities Identification Number (ISIN) is a unique alphanumeric code used globally to identify securities like equity shares, bonds, and preference shares. Key points about ISIN include:

  • Global Standard: ISINs are universally recognized and essential for trading and settlement.
  • Regulatory Requirement: SEBI mandates that all securities listed on exchanges or offered to the public must have ISINs for regulatory compliance and tracking purposes.

ISINs streamline securities identification and enhance transparency in financial markets.

According to Rule 9B, every Non-Small Private Limited Company in India is obligated to ensure the dematerialization of all its existing securities. This involves submitting necessary applications to a depository such as NSDL or CDSL and obtaining an International Securities Identification Number (ISIN) for each type of security issued by the company.

Key points to note:

ISIN Requirement: An ISIN is a unique alphanumeric code that identifies a company’s securities globally, facilitating trading and regulatory compliance.

Mandatory Compliance: Regardless of shareholder intentions to transfer shares, the company must initiate the dematerialization process and apply for ISINs to comply with Rule 9B.

Shareholder Notification: The company is also responsible for informing all existing security holders about the dematerialization process and the issuance of ISINs.

‍Step 4: Opening a Demat Account with a Depository Participant (DP)

As per regulatory requirements, the company must ensure the opening of a Demat account with a Depository Participant (DP) to facilitate the dematerialization of securities. DPs, typically banks or brokerage firms, are authorized entities responsible for managing electronic securities on behalf of investors and companies.

Opening a Demat account enables the company to convert physical share certificates into electronic form, enhancing security and efficiency in managing securities. This process aligns with SEBI regulations and promotes transparency in capital market operations.

Step 5: Conversion of Physical Share Certificates to Electronic Form

To comply with dematerialization requirements, the company facilitates the conversion of shareholders’ physical share certificates to electronic forms through a Depository Participant (DP). Shareholders submit their physical certificates to the DP, which verifies and approves the dematerialization request. Once approved, the physical certificates are canceled, and electronic entries reflecting the securities are credited to the company’s Demat account. This process enhances security, reduces risks associated with physical certificates, and aligns with SEBI regulations for efficient securities management.

Submission of Documents: The company needs to submit essential documents to the chosen DP, including:

  • Share certificates that need to be dematerialized.
  • Board resolutions authorizing the dematerialization process.
  • Identification proofs of authorized signatories and other relevant documents as required.

Step 6: Dematerialization Requirement for Promoters, Directors, and KMPs

Before issuing any new securities, it is mandatory for all promoters, directors, and Key Managerial Personnel (KMPs) of the company to ensure their shareholdings are held in dematerialized form. They must link their Demat accounts with the company to have their shareholdings electronically credited to them. This requirement enhances transparency and compliance with SEBI regulations, ensuring that all securities transactions are conducted efficiently and securely in electronic format.

Step 7: Regular Reporting (PAS 6):

According to Rule 9B, every Non-Small Private Limited Company must adhere to the following compliance obligations:

  • Submission of Form PAS-6: Submit Form PAS-6 to the Registrar within sixty days from the conclusion of each half-year, certified by a company secretary in practice or a chartered accountant in practice. The due dates are 30th May for the half-year ending 31st March and 29th November for the half-year ending 30th September, irrespective of whether shareholders have converted shares to Demat format.
  • Payment of Fees: Timely payment of fees, including admission and annual fees, as per the Companies (Registration Offices and Fees) Rules, 2014.
  • Security Deposit: Maintain a security deposit equivalent to two years’ fees, as per agreements with the depository, registrar to an issue, and share transfer agent.
  • Compliance with Regulations: Adhere to regulations, guidelines, or circulars issued by the Securities and Exchange Board of India (SEBI) or the depositories from time to time.

Penalties for Non-Compliance with Dematerialization Requirements

Non-compliance with the dematerialization requirements by 30th September 2024 may lead to severe penalties under Section 450 of the Companies Act. Key penalties include:

Restrictions on Securities:

  • The company cannot issue or allot any securities, including bonus shares.
  • Buyback of shares or securities is also prohibited.

Restrictions on Security Holders:

  • Security holders cannot transfer or subscribe to any security until compliance is achieved.

Monetary Penalties:

  • Company: A fine of INR 10,000 plus INR 1,000 per day for continued violation, up to a maximum of INR 200,000.
  • Officers in Default: Each officer faces a fine of INR 10,000 plus INR 1,000 per day, with a maximum penalty of INR 50,000.


Dematerialization (Demat) registration and International Securities Identification Number (ISIN) issuance are crucial steps for private companies aiming to comply with SEBI regulations and modernize their financial practices. These processes offer several benefits:

  1. Enhanced Operational Efficiency: Moving from physical share certificates to electronic format streamlines securities management, reducing the risks of loss, theft, or forgery associated with paper certificates.
  2. Compliance with SEBI Regulations: SEBI mandates that all securities listed on exchanges or offered to the public must have ISINs. Obtaining ISINs ensures compliance with regulatory standards and facilitates transparent trading and settlement processes.
  3. Investor Confidence: By adopting Demat and ISIN processes, companies demonstrate their commitment to transparency and investor protection. This fosters trust among shareholders and potential investors, enhancing overall investor confidence.
  4. Access to Broader Capital Markets: Dematerialization and ISIN issuance enable companies to participate more actively in capital markets. They can attract a broader investor base, potentially leading to increased liquidity and funding opportunities.


In conclusion, embracing Demat registration and ISIN issuance not only aligns private companies with regulatory requirements but also positions them to operate more efficiently, build investor trust, and leverage opportunities in the capital markets.

The amendment mandating the dematerialization of shares for Private Limited Companies in India represents a significant step toward modernization and increased transparency. By addressing issues of fraud and operational inefficiencies and aligning with global standards, this move enhances regulatory compliance and streamlines corporate operations, fostering a more secure and efficient business environment.


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