Unlisted Public companies to issue/ transfer Shares in Demat Form only: MCA Notification
MCA has notified the ‘Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018’. Now all Unlisted Public companies are required to issue/ transfer Shares in Demat Form only, w.e.f. 2 Oct. 2018 and also to dematerialise the existing securities, as a measure to enhance transparency, investor protection and corporate governance standards, etc.
The advantages of MCA’s initiative to issue/ transfer shares in Demat Form only by all Unlisted Public companies include:-
i) Elimination of risks associated with physical certificates such as loss, theft, mutilation, fraud etc.
ii) Improving the corporate governance system by increasing transparency and preventing mal-practices such as benami shareholding, back dated issuance of shares, etc.
iii) Exemption from payment of stamp duty on transfer.
iv) Ease in transfer, pledge etc. of securities.
Now the Unlisted Public Companies are required to facilitate
dematerialisation of their existing securities, further issue/ transfer,
etc. in coordination with Depositories and Share Transfer Agents. Any
grievances arising out of such Dematerialization of securities will be
handled by the IEPF Authority.
Companies (Prospectus and Allotment of Securities) Third Amendment Rules,
2018: MCA Notification dt. 10 Sept. 2018
G.S.R. .. (E).- In exercise of the powers conferred by clause (b) of sub-section (1) of section 29 read with sub-sections (1) and (2) of section 469 of the Companies Act 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Prospectus and Allotment of Securities) Rules, 2014, namely:-
1. Short title and commencement – (1) These rules may be called the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018. (2) They shall come into force on the 2nd day of October, 2018.
2. In the Companies (Prospectus and Allotment of Securities) Rules, 2014, after rule 9, the following rule shall be inserted, namely:-
“9A. Issue of securities in dematerialised form by unlisted public companies.- (1) Every unlisted public company shall-
(a) issue the securities only in dematerialised form; and
(b) facilitate dematerialisation of all its existing securities
in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
(2) Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights
offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been demateriarised in accordance with provisions of the Depositories Ac! 1996
and regulations made there under.
(3) Every holder of securities of an unlisted public company,-
(a) who intends to transfer such securities on or after 2nd October, 2018, shall get such securities dematerialised before the transfer; or
(b) who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities are held in
dematerialized form before such subscription.