Digitization of securities and transparency

livemint.com:

dematerialization of securities mandatory for private companies. Dematerialisation is a multi-purpose strategy, which, in the sweep of enhanced transparency, helps regulators keep a watch on benami share transactions, conduit or shell companies, back dated allotment of securities, appropriate payment of stamp duty on share issuance or transfers, clear title to securities in pledges, etc.

For investors, this alteration strengthens credibility of securities when offered as collaterals, helps achieve consolidation of holdings in a demat account, minimizes risks associated with physical share certificates such as loss, theft, mutilation, etc., and facilitates swift investment exits. Investee companies may also eventually lure perks of seamless transaction handling.

A private company which is not a “small company" as on last day of financial year (FY) ending on or after 31 March 2023 as per audited financials (qualifying companies) is required to dematerialise its securities within 18 months from end of such FY (referred to as compliance date). Therefore, for qualifying companies existing as on 31 March 2023, the compliance due date is 30 September 2024.

The notification inter alia casts obligation on qualifying company to ensure that entire holding of securities of its promoters, directors, KMPs is dematerialised where any corporate action (ie offer for issue of securities or buyback of securities, bonus issue or right issue) is proposed with respect to its securities after the compliance date. Alongside, once compliance date is lapsed, security holders should ensure dematerialised holding before effecting transfers or fresh subscriptions.