Dematerialization of securities by unlisted public companies

The Central Government through its notification dated 10th September 2018 amended the Companies (Prospectus and Allotment of Securities) Rules, 2014

The new rules may be called the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018 which shall be in force from 02nd October 2018

These rules were amended by inserting a new Rule 9A after existing rule 9

KEY HIGHLIGHTS OF THIS NEW RULE 9A ARE:

1. After 02nd October 2018, every unlisted public company shall issue securities only in dematerialized form and also facilitate the dematerialization of all its existing securities.
2. Every unlisted public company before making an offer for the issue of any securities or buyback of securities or issue of bonus shares or right offer shall ensure that the entire holding of its promoters, directors, and KMP has been dematerialized.
3. Every holder of securities of an unlisted public company, who intends to transfer his/her securities on or after 02nd October 2018, shall ensure that those securities dematerialized before such transfer.
4. Every holder of securities of an unlisted public company, who intends to subscribe to any securities of an unlisted public company through private placement/right offer/bonus shares on or after 02nd October 2018 has to ensure that their existing securities are dematerialized before such subscription.
5. Every unlisted company shall get an International Security Identification Number (ISIN) for each type of securities and also inform all its existing security holders about such a facility.
6. Every unlisted company shall file form PAS-6 (Reconciliation of Share Capital Audit Report) on a half-yearly basis to the respective ROC

PROCEDURE FOR DEMATERIALIZATION OF SECURITIES:

The entire dematerialization procedure is divided into the following 3 steps:

1. Getting International Security Identification Number (ISIN) for each type of security.
2. Opening Demat accounts of all promoters, directors, and KMP (if they haven’t opened yet)
3. Submitting Dematerialisation Request Forms (DRF) with respective depositories for converting existing physical securities to demat.

PROCEDURE FOR GETTING INTERNATIONAL SECURITY IDENTIFICATION NUMBER (ISIN):

• Appointment of Registrar and Transfer Agent (RTA) + Entering into an agreement with them.
• Appointing Depository for admitting securities in Central Depository Securities Limited/ National Securities Depository Limited (CDSL/NSDL) + Entering into Tri-party agreement between Company, RTA and CDSL/NSDL)
• Once Registrar and Transfer Agent (RTA) are appointed and securities are admitted, inform all members that Company is providing a facility for the dematerialization of shares.
• The entire current holding of Promoters, Directors, and Key Managerial Personnel (KMP) to be converted in electronic form. 
• Thereafter, converting all remaining shares (other than all promoters, directors, and KMP) in electronic form as and when required or at the time of transferring existing shares.

DOCUMENTS REQUIRED FOR GETTING ISIN:

• Master Creation form (Part A and B)- As per CDSL/NSDL Formats
• Board Resolutions
• The company undertaking cum indemnity - As per CDSL/NSDL Formats
• Tripartite Agreement- As per CDSL/NSDL Formats
• Security details- As per CDSL/NSDL Formats
• Incorporation Certificate
• GST certificate & TAN Certificate.
• Companies Pan Card
• Net worth Certificate
• MOA and AOA
• Latest Annual Report
• Allotment forms and resolutions
• Allotment Summary

FEE STRUCTURE OF CDSL/NSDL FOR GETTING ISIN:

• The company shall pay one-time joining fees of Rs. 15,000/- plus GST 18%
• Annual Custody Fees at the rate of Rs. 11 per folio (ISIN Position) subject to a minimum amount as mentioned in the table
• Security Deposit (refundable) 2 years of applicable annual custody fees
• Folio Maintenance Charges

OPENING DEMAT ACCOUNTS:

The company shall ensure that all its promoters, directors, and KMP holding securities have opened their demat accounts.

SUBMITTING DEMATERIALISATION REQUEST FORMS (DRF) WITH RESPECTIVE DEPOSITORIES:

The last step is to submit Dematerialisation Request Forms (DRF) along with original Share Certificates to the respective depository participant (DP) for effecting the dematerialization of existing securities.

The author can also be reached at csneharedekar@gmail.com

Disclaimer: Please note that the above article is based on the interpretation of related laws, which may differ from person to person and is not legal advice.