We all are aware that listed companies have to mandatorily provide facility of keeping shares of stakeholders in demat form. For this purpose, Company admit its share into depository.

with effect from 2 October 2018 ,in accordance with rule 9 (A) of the Companies (Prospectus and allotment of securities) Rules 2014 (“Rules”) unlisted public company will also have to admit their securities with Depositories.

Let’s get through some basic concepts of demat of shares by unlisted public companies.

What is the requirement of Demat of Securities by unlisted public companies?

Rule 9A(1) of the Rules states that every unlisted public company shall in accordance with provisions of the Depositories Act, 1996 and regulations made there under

• Issue the securities only in dematerialised form; and
• Facilitate dematerialisation of all its existing securities

What are the Obligations on unlisted public companies?

As per Rule 9A(2) of the Rules entire holding of securities of its promoters, directors, key managerial personnel has to be in demateriarised form if company is willing for any of below given activities:

• making any offer for issue of any securities
• buyback of securities
• issue of bonus shares
• rights offer

What are the obligations of securityholder?

Rule 9A(3) states for Restriction on transfer, If securityholders of unlisted public company wishes to transfer their securities after October 02, 2018 they will not be able to do so unless their securities are in demat form.

Further securityholder who subscribe securities after October 02, 2018 whether by way of private placement or bonus shares or rights offer shall ensure that all his existing securities are held in dematerialized form before such subscription.

Do Companies need to admit all type of securities?

Rule 9A(4) states every unlisted public company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository and shall secure International security Identification Number (ISIN) for each type of security and shall in-form all its existing security holders about such facility.

What are other Compliances of the Company?

Rule 9A(5) states the obligations of unlisted public companies which are as given below:

• make timely payment of fees to the depository and registrar to an issue and share transfer agent (RTA).
• maintains security deposit at all times, of not less than two years, fees with the depository and registrar to an issue and share transfer agent
• Comply SEBI Regulations with respect to dematerialisation of shares

What are the consequence of Non Compliance in Payment ?

If any unlisted public company has defaulted in payment of depository or RTA than it cannot offer for buyback of shares, Right issue, Bonus Issue etc. in accordance with Rule 9A(6) of the Rules.

What regulations are applicable on Company?

Following regulations are applicable on unlisted companies as per Rule 9A(7) of the Rules.

• The Depositories Act 1996
• the securities and Exchange Board of India (Depositories and participants) Regulations, 2018]
• the securities and Exchange Board of India (Registrars to an Issue and share Transfer Agents) Regulations, 1993

Do Company need to file any Form with ROC?

Yes, as per Rule 9A(8) of the Rules, every unlisted public company is required to file  Eform PAS 6 within 60 days from the end of half year and it should be certified by company secretary in practice or chartered accountant in practice.

Thus PAS 6 is filed twice in a year:

Company should also inform the depository if there is any difference observed in its issued capital and the capital held in dematerialised form.

How securityholder will resolve their Grievance?

Rule 9A(9) and (10) states that any security holder may raise their concern regarding their demat issue before the Investor Education and protection Fund Authority. The Investor Education and protection Fund Authority shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with the securities and Exchange Board of India.

Is there is any Exemptions on applicability of these Rules?

As per Rule 9A(11) these rules are not applicable on:

• Nidhi Companies
• Government Companies
• Wholly owned subsidiary Companies

These rules on demat of shares by unlisted public companies is a welcome step as this would bring more transparency in the manner of securities handling by unlisted public companies. Securityholders of unlisted public companies are advised to convert their shares into demat form as they will not be able to transfer their shares in physical mode further keeping shares in demat form has its own benefits.

Demat of Securities by Unlisted Public Companies: Essential FAQs

1. What is the mandatory requirement for demat in unlisted public companies?

Since October 02, 2018, under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014, every unlisted public company must:

• Issue all new securities only in dematerialised form.
• Facilitate the dematerialisation of all its existing securities.

2. What are the specific obligations for company management?

The entire security holdings of promoters, directors, and Key Managerial Personnel (KMP) must be in dematerialised form before the company can undertake specific corporate actions. These actions include:

• Making an offer for the issue of any securities.
• Conducting a buyback of securities.
• Issuing bonus shares or rights offers.

3. How are securityholders restricted regarding physical shares?

If a securityholder in an unlisted public company wishes to transfer their securities after October 02, 2018, they are prohibited from doing so unless the securities are in demat form. Additionally, anyone subscribing to new securities (via private placement, bonus, or rights) must ensure all their existing holdings are dematerialised before the subscription.

4. What are the ongoing financial and regulatory compliances for the company?

Unlisted public companies are required to:

• Secure an International Security Identification Number (ISIN) for each type of security.
• Make timely payment of fees to the depository and Registrar and Transfer Agent (RTA).
• Maintain a security deposit at all times with the depository/RTA of not less than two years’ worth of fees.
• Comply with relevant SEBI Regulations and the Depositories Act, 1996.

5. What happens if a company defaults on payments to the depository or RTA?

If a company defaults on fees owed to the depository or its RTA, it is legally barred from offering buybacks, rights issues, or bonus issues.

6. Which ROC forms must be filed, and what are the deadlines?

Every unlisted public company must file E-form PAS-6 half-yearly within 60 days of the period’s end. The form must be certified by a practicing Company Secretary or Chartered Accountant.