Unlisted firms will have to issue shares in demat form

The government will soon make it mandatory for unlisted companies to issue new shares only in the dematerialised form, senior officials said, amid intensified efforts to fight the black money menace.

Besides, the unlisted corporates would have to ensure that shares are transferred only in dematerialised (demat) or electronic form.

Initially, these regulatory requirements, expected to be effective from the first week of October, would cover more than 70,000 public companies, two senior government officials said. Officials said that to begin with, issuance of new shares and transfer of shares by unlisted companies would have to compulsorily be in the demat form and that the decision has been taken after extensive discussions with stakeholders. With respect to issuance of bonus shares and stock split also, the entities would have to issue them in the demat form, they added.

The proposed move would help in enhancing transparency in ownership at corporates, curb benami transactions and bolster the efforts to weed out shell companies that are allegedly used for illicit activities, they said.

According to the officials, having shares in the dematerialised form would also bolster the Know Your Client (KYC) framework for unlisted companies and prevent instances such as pledging of duplicate shares. The ministry also held extensive deliberations with market regulator Sebi on the matter of unlisted companies having their shares in the dematerialised form, the officials said.

The officials said the corporate affairs ministry held discussions with depositories and registrars to an issue and transfer agents. They have been asked to keep costs at minimum for conversion of shares in physical form to dematerialised form by the unlisted firms, the official added. At present, listed firms need to have shares in electronic form but is not compulsory. The corporate affairs ministry would soon be issuing rules under the Companies Act, 2013, for unlisted firms with respect to having shares in the demat form.