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RULE 9B MANDATORY CONVERSATION OF SHARE INTO DEMATE|| Private limited company share in demate|| THE LEGAL TIME

The enactment of Rule 9B signifies a paradigm shift in the way private limited companies manage their shares and comply with regulatory requirements. It underscores the government's commitment to modernizing business practices and fostering transparency in corporate operations.

 

 Key Provisions of Rule 9B

 

Compulsory Dematerialization:


Under Rule 9B, private limited companies are compelled to issue and hold shares exclusively in dematerialized form. This entails the abandonment of physical share certificates in favor of electronic storage through demat accounts. The transition to dematerialization enhances the efficiency, security, and transparency of shareholding, mitigating risks associated with physical certificates.

 

Dematerialized Share Transfers:


Share transfers within private limited companies must be conducted electronically through demat accounts, as mandated by Rule 9B. This streamlined process expedites share transactions, minimizes errors, and fosters transparency in the transfer mechanism.

 

 Due Date:

 

This rule makes it compulsory to convert shares into dematerialized form within 18 months after the end of the financial year. This shift significantly impacts the internal workings of these companies, changing how shares are owned and transferred.

 

 Informing the Registrar:

 

Within three months of the commencement of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, public companies with unconverted share warrants must inform the Registrar about the details using Form PAS7.

 

 Dematerialization Requirement:

 

Within six months of the commencement of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, these companies must ask the holders of share warrants to surrender them and get their shares dematerialized. The company needs to notify the holders through Form PAS8 on its website and in newspapers. This notification should be in both the local language and English, as per the location of the company's registered office.

 

 What Companies Need to Do:

 

Check Eligibility:

Companies should see if they fall under Rule 9B based on their financials for the year ending March 31, 2023.

 

Go Electronic:

If they do, they must start converting their shares into electronic form and update their records.

 

Follow the Timeline:

Companies have 18 months from March 31, 2023, to follow these rules. Missing the deadline can lead to fines or other penalties.

 

 Step By Step Process to Follow Compliance

 

1. Assessment:

This provision is only applicable to companies other than small companies. So, if your company is not a small company, you need not comply with the amendment.

small company’’ means a company, other than a public company, —

 

(i) paid up share capital of which does not exceed 4 crores, or such higher amount as may be prescribed which shall not be more than 10 crores.

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 40 crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees

 

Provided that nothing in this clause shall apply to  —


(A) a holding company or a subsidiary company.

 

(B) a company registered under section 8; or

 

(C) a company or body corporate governed by any special Act.


2. Dematerialization Process:

Connect with NSDL or CDSL for ISBN no. Once your company gets the ISBN no., promoters and shareholders can convert their shares into a demat account through their depository participant.

 

3. Transfer Mechanism:

Promoters shall transfer all the shares into demat through their depository participant.

 

4. Compliance Documentation:

Maintain comprehensive records of compliance efforts, including the dematerialization process and share transfers. This documentation is vital for regulatory reporting and auditing purposes.

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