/ Dematerialization of Securities: A Comprehensive Guide for Compliance
In India, all companies limited by shares are required to issue equity, preference shares, or other securities for capitalization, which can be issued in physical or electronic format. The dematerialization of securities involves the conversion of physical securities, such as share certificates and bonds, into electronic or digital form.
The compulsory dematerialization of securities for listed companies has been enforced since 1996. In recent years, the government extended this obligation to public companies. Subsequently, on October 27, 2023, the Ministry of Corporate Affairs (MCA) mandated the dematerialization of securities for private companies by amending the Companies (Prospectus and Allotment of Securities) Rules, 2014, through a notification. The requirement for dematerialization of securities applies to both issuers (‘Company’) and investors (‘shareholders’).
According to the recent amendment in laws:
Every private company, other than a small company, shall within the period referred to in sub-rule (2):
(a) issue the securities only in dematerialised form; and
(b) facilitate the dematerialisation of all its securities,
per provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder.
Since Subsidiaries of foreign companies do not fall under the definition of small companies all subsidiary of foreign companies needs to proceed for the dematerialisation of shares.
In the dematerialization process, three key entities play crucial roles under
The company (Foreign subsidiary) and investor (Shareholder) need to take the below steps to comply with the dematerialization requirements:
Step – I: Creation of ISIN: The International Securities Identification Number (‘ISIN’) code is a 12-digit (alphanumeric) numbering system for the unique representation of securities such as stocks and bonds of the company. The Company needs to choose and appoint a depository, which will issue the (ISIN) for a unique representation of securities.
Step – II: Appointment of RTA: The Company need to choose and appoint a RTA and enter into a triparty agreement with the Depository and RTA so that RTA can act as Registrar and Transfer Agents and update the shares of respective ISIN.
Step – III: Open of Demat Account of shareholders: Shareholder needs to open their Demat account with a Depository Participant (‘DP’). DP hold the securities in electronic form in the demat accounts of shareholder
Step – IV: Conversion of physical shares into the electronic form: Once the demat account is opened thereafter shareholder needs to submit their physical shares to their DP for converting the same into electronic form. DP will forward this request to RTA. RTA will convert the shares into electronic form and credit into the demat account of shareholders.
What Are the Consequences / Penalties for Non-Compliance?
- The company will not be able to issue/allot any type of securities.
- The security holder will not be able to transfer or subscribe to any type of security.
- Monetary penalties on the company and every officer in default:
– On the company: INR 10,000 + INR 1,000 for each day till the violation continues. The maximum limit is INR 200,000.
– Every officer of the company who is in default – same as above. The maximum limit is INR 50,000.
Deadline for Compliance:
The deadline for compliance is 18 months from the date of closure of the financial year ending on or after 31 March 2023, which means the deadline is 30 September 2024 or later depending on the company’s financial year-end.
How Maier Vidorno Altios Can Support Foreign Companies in the Dematerialization of Securities:
Maier Vidorno Altios is well-equipped to assist foreign subsidiaries throughout the dematerialization process, from finalizing depositories, RTAs, and DPs to opening demat accounts and converting physical shares into electronic form.
MEET OUR EXPERTS
RECENT BLOGS ON SALES IN INDIA & DOING BUSINESS IN INDIA
Checklist for Sales Optimization in India: Overcoming Common Challenges
/Checklist for Sales Optimization in India: Overcoming Common Challenges So, you’re thinking about entering the Indian market? Great choice! It’s full of opportunities, but you
Manufacturing in India: Opportunities and Considerations for Foreign Companies
/ Manufacturing in India: Opportunities and Considerations for Foreign Companies Overview of India’s Manufacturing Landscape Manufacturing in India stands at a pivotal juncture, poised for
Is your Indian subsidiary fastest-growing amongst global subsidiaries?
/ Is your India Subsidiary fastest growing amongst your Global Subsidiary? We, at Maier Vidorno Altios help companies reveal their true International Potential through one
Shareholding Structure for a Subsidiary of Foreign Company in India
/ Shareholding Structure for a Subsidiary of Foreign Company in India The shareholding pattern at the time of incorporation of a company typically outlines the
Financing Manufacturing for Foreign Companies in India: Capital, ECBs, and Bank Loans Compared
/ Financing Manufacturing for Foreign Companies in India India’s vast and growing market presents a tempting opportunity for foreign companies looking to expand their global
Differences in the way of doing business in India among Indian states
/ Unlocking Opportunities: Guide to Doing Business in India India is almost as large as the European Union and has more than twice as many
Avoiding Common Pitfalls When Establishing Manufacturing in India
/ Avoiding Common Pitfalls When Establishing Manufacturing in India If you want to start manufacturing in India, you cannot simply copy-paste your European set-up. During
Entering the Indian Market Successfully: A Guide for European Companies
/ Entering the Indian Market Successfully: A Guide for European Companies Are you an European company eyeing the vast opportunities that India offers? The Indian
4 Key Sales Trends in India Amid Changing Business Landscape
/ 4 Key Sales Trends in India Amid Changing Business Landscape In the wake of the pandemic and a global economic slowdown, sales strategies across
Thriving Amid Challenges: How to Sustain Your Indian Business Venture
/ Thriving Amid Challenges: How to Sustain Your Indian Business Venture? India, with its rapidly growing economy, vast consumer base and government initiatives to promote
The Power of Organizational Resilience: Navigating Challenges and Thriving in Turbulent Times
/ The Power of Organizational Resilience: Navigating Challenges and Thriving in Turbulent Times In today’s fast-paced and unpredictable business landscape, organizations face a myriad of
India’s Life Sciences Industry Set to Boom in the Near Future
/ India’s Life Sciences Industry Set to Boom in the Near Future The Life Sciences sector in India is at a crucial juncture, with rapid
What’s Cooking In India’s Food & Beverage Industry?
/ What’s Cooking In India’s Food & Beverage Industry? The Food and Beverage industry is one of the largest and fastest-growing industries in India. It
How to regain financial control of your India business
/ How to Regain Financial Control of your India Business • Lack of business visibility and dependence on gut feeling for taking business decisions• Insufficient
Sales In India – Best India Market Entry Strategy
/ Sales In India – Best India Market Entry Strategy To sell foreign products successfully in India you need to choose the right India market-entry
Why choose India as your Outsourcing Partner
WHY CHOOSE INDIA AS YOUR OUTSOURCING PARTNER? A Comprehensive Guide to Back Office Outsourcing Back office outsourcing refers to a process where back-office services are
TLT-Turbo – Incubation solutions for Establishing a Profitable Indian Venture
/ Incubation solution for successful India market entry Subsidiary of TLT-Turbo (Sichuan) Co. Ltd & TLT-Turbo GmbH (a POWER CHINA company) Case Summary: TLT-Turbo Challenge Difficulties
What factors affect the decision of own set-up v/s working with an agent?
/ What factors affect the decision of own set-up v/s working with an agent? There are pros and cons to both approaches – own set-up
INDIA BUSINESS GUIDE
DOING BUSINESS IN INDIA A pragmatic guide for foreign companies in India Introducing the Guide Why We Made It Maier Vidorno Altios is pleased to
What documents do I need to incorporate a subsidiary company in India?
/What documents do I need to incorporate a subsidiary company in India? What are the company incorporation documents needed to set-up a subsidiary in India?