In 2023, the Ministry of Corporate Affairs amended the rules to require private companies (other than small companies) to issue their securities only in dematerialised form. The compliance date was extended to 30 September 2026. This means private companies that are not small companies must convert their physical shares into demat form by that date.
Who must comply
The requirement applies to every private company that is not a small company. A small company is a private company with a paid-up capital of up to ₹10 crore and a turnover of up to ₹100 crore, subject to the exclusions. If a private company crosses these thresholds, it loses the small company status and must comply with the demat requirement.
Who is exempt
The following are exempt from the mandatory demat requirement:
- Small companies
- Government companies
- Nidhi companies
- Producer companies
- OPCs
A private company that is a subsidiary of a public company may not qualify as a small company, and should check its status.
The process
The company must:
- Appoint a Registrar and Transfer Agent (RTA)
- Obtain an ISIN from NSDL or CDSL
- Enter into a tripartite agreement with the depository and the RTA
- Inform the shareholders about the demat requirement
- Convert the physical shares into demat form
The shareholders must open a demat account with a depository participant and submit a dematerialisation request.
The deadline
The compliance date is 30 September 2026. A company that misses the deadline faces a penalty and a restriction on share transfers. The company should start the process well before the deadline, because obtaining the ISIN and the tripartite agreement can take time.
The practical points
The company should check whether it qualifies as a small company. If it does not, it should begin the demat process immediately. The shareholders should be informed about the deadline and the process. The company should maintain the ISIN, the tripartite agreement and the RTA records.
Call to Action: We advise private companies on demat compliance, ISIN and RTA coordination. For a demat-readiness review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.