Dematerialisation of shares of section 8 company

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What is Dematerialization of shares?

Dematerialization refers to the process of converting physical share certificates and securities into an electronic form like we holds shares of listed companies. This transition eliminates the need for paper-based certificates, making the ownership and transfer of securities easier, safer, and more transparency. The goal is to enhance transparency and governance by transitioning from physical share certificates to electronic formats.

dematerialisation of shares of section 8 company

Who Must Comply?

As the compliance deadline nears (30th September 2024 [most likely to get extension] ), stakeholders are asking if these rules apply to section 8 companies?

The dematerialization mandate under Rule 9A and 9B requires all private and unlisted public companies, excluding small companies, to issue securities in dematerialized form. 

What is a Small Company?

A small company, under the Companies Act, is defined as a company that meets the following criteria:
  • Paid-up capital: Does not exceed Rs 4 crore.
  • Turnover: Does not exceed Rs 40 crore.
However, certain companies, even if they meet the financial thresholds, are explicitly excluded from the definition of a small company. These include:
  • Holding companies or subsidiaries.
  • Companies governed by special acts.
  • Section 8 companies.

Does Dematerialization Apply to Section 8 Companies?

Yes.

Since Section 8 companies are not classified as small companies, they are subject to the same dematerialization rules as any other private or unlisted public company. As per the recent amendments, Section 8 companies must:
  1. Issue their securities in dematerialized form.
  2. Facilitate the conversion of existing physical securities into electronic form.

Does Dematerialization Apply to Producer Companies?

Yes.
However , vide MCA circular G.S.R. 583(E) dated 20th September 2024, extended time period from 18 month to 5 years to comply with this provisions. 

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