Dematerialization for Private Companies in India (2025 Guide)

We all are aware of the basic fact that securities of a public company are traded in dematerialized form i.e. handled electronically through depository participants without any physical handling whatsoever. Depository participants generally refer to the countless stock market applications available in the market such as Angel One, Zerodha, Groww etc.

However, the Ministry of Commerce, through their notification back in 2023 made it compulsory for all private companies to dematerialize their shares by the deadline provided. Since then, the deadline has been continuously extended, the last date to fulfil the compliance being June 30^th, 2025. The move came amid a push to provide for company transparency and enhanced investor protection. With the deadline already passed and no further extension in sight, it is important for both companies and investors to understand the compliance to avoid penalties. Thus, this article provides a comprehensive understanding on the extant law and the steps required on both company and investor’s behalf. Let’s get into it.

Which Companies are required to Dematerialize their Securities?

 It is important to know that Rule 9B of Companies (Prospectus and Allotment of Securities) Rules, 2014 provides that “Every private company, other than a small company, shall – (a) issue the securities only in dematerialized form; and (b) facilitate dematerialization of all its securities”.

For eligible companies (public companies and private companies that are not small companies) the deadline to dematerialize securities was extended till 30^th June 2025 through Notification No. G.S.R. 131(E) dated 12^th February 2025.

Since all private companies except small companies are under the compliance to dematerialize their securities, it is important to understand if your company falls under the definition of ‘Small Company’.

What Is A Small Company?

As per Section 2(85) of Companies Act, 2013 – “Small Company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed [prescribed at INR 4 Crore in Rule 2(1)(t) of Companies (Specification of Definitions Details) Rules, 2014] which shall not be more than ten crore rupees; and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed [prescribed at INR 40 Crore in Rule 2(1)(t) of Companies (Specification of Definitions Details) Rules, 2014] 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;

Small Company Definition Simplified

A Small Company is a private company that meets both of the following conditions:

1. Paid-up capital is not more than INR 4 crore (cannot be more than INR 10 crore).
2. Annual turnover is not more than INR 40 crore (cannot be more than INR 100 crore).

Following are excluded:

1. A holding company (that owns other companies)
2. A subsidiary company (owned by another company)
3. A Section 8 company (non-profit organization)
4. A company made under special law.  

What Securities Are To Be Dematerialized?

Under Section 2(81) of Companies Act, 2013 r/w Section 2(h) of Securities Contracts (Regulation) Act, 1956 , securities include the following:

1. Shares;
2. Scrips;
3. Stocks;
4. Bonds and debentures;
5. Debenture stock; or
6. other marketable securities.

Thus, it is important to understand that not only shares, but debt instruments such as bonds and debentures are also to be dematerialized to ensure complete transparency in the dealings of the Company.

How can Companies dematerialize their Securities?

 This section provides a basic structural framework to get you started if you are looking to dematerialize your own or client Company’s securities:

1. Approach a SEBI registered Registrar:

   A SEBI registered Registrar and Transfer Agent (“RTA”) is an agent of the issuer (the Company). RTA acts as an intermediary between the issuer and depository for providing services such as dematerialization, rematerialization, initial public offers (IPO) and corporate actions. A Company has to approach an RTA to start the procedure. Generally, a tripartite agreement is entered into between the Company, the depository(s) (NSDL/CDSL) for handling the Company securities.
   1. List of SEBI registered RTAs is available here on this SEBI link.
   2. A few templates for tripartite agreements to help you understand the technicality are available here and here.
   3. Once the formalities are fulfilled, the RTA will issue a confirmation letter that will be instrumental for further steps.

2. Securing International Security Identification Number (“ISIN”):

   ISIN is a unique 12 digit alphanumeric identification number allotted for a security (g.‐ INE383C01018). Each security issued by the same issuer will have different ISIN. ISIN is basically an ID proof of your securities which will be used by all security holders (investors) at a later stage to identify and dematerialize their physical shares. An application is made to the depository through an RTA. An indicative list of documents that would be required is provided below:
   1. Certified copies of MoA and AoA. The depository may check whether the AOA contains provision relating to dematerialization. In case, your AOA does not contain provision relating to dematerialization of securities, then the company shall amend the AOA to include the same.;
   2. Certified copy of the Board Resolution authorizing a signatory to execute documents for the procedure at hand (format available here);
   3. Certified copy of audited annual report for the last financial year;
   4. Net worth certificate basis the last audited report. Format is available at this link;
   5. Confirmation letter from RTA (format provided hereinabove at Point 1);
   6. Company undertaking ensuring compliance with applicable laws. Format is available at this link.
   7. Tripartite agreement (explained under Point 1);

3. Filing PAS-6:

   Companies are required to submit Form PAS-6 to the ROC within sixty (60) days from the conclusion of each half year duly certified by a CS/CA

NOTE: In case, the company issues any further type of securities, then it has to approach RTA again for allotment of ISIN. Also, the company must ensure that the entire holding of securities of its promoters, directors, and key managerial personnel has been dematerialized before making any offer for the issue of securities, buyback of securities, or issuing bonus shares or rights offer.

How can Investors dematerialize their securities?

Post completion of the required actions by the Company, the investors have to take certain steps to ensure that their shares get allotted to their DP account. The process to be undertaken is mentioned below:

1. Create your Demat Account:

   The security holder has to open a demat account with a depository participant (Groww, Angel One, Zerodha etc.) .

2. Submission of Demat Request:

   The investor has to submit a request to the DP in the Demat Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the holder has to deface the certificates by writing “SURRENDERED FOR DEMATERIALIZATION”

3. Verification by DP:

   The DP will have to verify that the Demat Request Form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgement slip duly signed and stamped, to the investor.

4. Scrutiny of the Request:

   The DP will scrutinize the Demat Request Form and the certificates. This scrutiny involves the following:
   1. Verification of signature on the form with the specimen signature (the signature on the account opening form). If the signature differs, the DP would ask additional information to ensure the identity of the client.
   2. Compare the names on DRF and certificates with the client account.
   3. Paid up status
   4. ISIN (International Securities Identification Number)
   5. Lock‐in status
   6. Distinctive numbers

5. Request to Depository:

   If the securities are found to be in order, the details of the request as mentioned in the form are submitted to NSDL/CDSL by the DP and a Dematerialization Request Number (“DRN”) is generated.

6. Double-check:

   A person other than the person who entered the data as provided in Point 5 is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to Depository Module which then forwards the request to the Issuer/ RTA electronically.

7. Confirmation:

   The Issuer/RTA then confirms acceptance of the request for dematerialization in their system and the same is forwarded to the Depository Module. The DM will electronically authorize the creation of appropriate credit balances in the client’s account.

Time taken for Demat request: This cycle takes about 15 to 30 days after the submission of dematerialization request.

IMPORTANT NOTE: In case, a company has applied for ISIN through NSDL and the shareholder has a demat account with CDSL, the shareholder will not be able to dematerialize its shares. Accordingly, when applying for an ISIN, the company should take into account the depository with which the current shareholders have established their demat accounts in most of the cases.

Conclusion

Since its already way past the deadline provided by the Ministry of Corporate Affairs for fulfilling this compliance, it becomes important for all organizations who come under the purview of this notification to complete the process at the earliest. This article tries to provide all the details that a Company or even an investor may require for dematerializing the shares before they get tangled in the penalties imposed by the authorities.