by Prashant Sharma, Founder at Infinilex Consultancy Private Limited
The Ministry of Corporate Affairs, Union of India, on 27.10.2023, notified the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 wherein they made it mandatory for Private Limited Companies in India to issue shares in a demat form and also mandated the conversion of all its existing shares to demat form.
What does this mean for Private Limited Companies in India?
This means that a Private Limited Company shall ensure that all its existing shares are de-materialised within 18 months from the end of the financial year that it ceases to be a small company. Any further issue of securities or initiating buy-back procedure of its shares or issuing bonus shares or making rights offer shall have to first ensure that the de-materialisation of all its existing shares is complete before they are permitted to make such additional issues or offers.
Does this apply to all Private Limited Companies?
No. Small companies, that is those private limited companies whose paid-up capital does not exceed INR 4 crores or the annual turnover of the company does not exceed INR 40 crores are exempt from the demat compliance.
Does this affect your business?
In the event that your previous financial year’s audited balance sheet does not declassify you as a small company, the notification does not apply to your business.