Mandatory issue of shares in dematerialised form by Private Companies

 

Mandatory issue of shares in dematerialised form by Private Companies

 

Date: 28 October 2023 

Category Tagging:  Private Companies 

 

Overview of Amendment- 

Ministry of Corporate Affairs (MCA) notified the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 on October 27, 2023. As per the amendment, a new rule 9B – “Issue of securities in dematerialised form by private companies” has been inserted after rule 9A. The new rule mandates that every private company, excluding small company, is required to:

  • Issue securities only in dematerialised form.

  • Facilitate the dematerialisation of all its securities as per the provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder.

Timeline to comply with the new rule- 

Every private company, except small company, must issue the securities only in dematerialised form within 18 months from the closure of the Financial Year i.e. March 31, 2023. The compliance with this rule is mandatory by September 30, 2024.

Every private company has to ensure that entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised by this timeline, failing which Companies cannot make any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer. 

The provisions of this rule shall not apply in case of a Government Company and Small Company.

Definition of Small Company –

A Small Company means a Private Company which satisfies the following two conditions-

  • paid up capital shall not exceed rupees four crore and

  • sales shall not exceed rupees forty crore.

The following companies are not considered as Small Company-

  • A holding company or a subsidiary company (including subsidiary of a foreign company)

  • Section 8 Companies (NGOs)

  • A company governed by any special Act

 

Read the MCA notification at: MCA Rule

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