The dematerialisation of shares of private companies has become an important task for corporate compliance and governance in India. By converting physical share certificates into electronic form, private companies can streamline share transfers, reduce risks of fraud, and ensure regulatory alignment. Although the mandatory deadline of June 30, 2025, has passed, private companies that have not yet completed the dematerialisation of shares for their private companies are required to comply at the earliest. Understanding the procedure for dematerialisation of shares of private companies and implementing it without delay is essential to avoid penalties and strengthen corporate governance. (Source A) (Source B).
Why Dematerialisation Matters for Private Companies
The dematerialisation of shares of private companies is not just a regulatory requirement—it is a governance upgrade that brings multiple benefits:
- Enhances corporate transparency by reducing risks of forgery and duplication.
- Enables faster transfer and allotment of securities.
- Streamlines and improves accuracy in regulatory reporting.
As India’s corporate ecosystem increasingly adopts digital-first governance, dematerialisation of shares of private companies ensures trust and convenience, while improving investor confidence.
Step-by-Step Dematerialisation Process
Navigating the procedure for dematerialisation of shares of a private company can seem complex, but with the right partner, it becomes a streamlined and efficient journey. At Rurash Financials, we specialize in guiding private companies through every stage of the dematerialisation of shares for private companies, ensuring full compliance and a seamless transition from physical to electronic holdings.
Private companies can follow this structured approach to complete the dematerialisation of shares for private company:
1. Amend Articles of Association (AoA)
2. Appoint a Registrar and Transfer Agent (RTA)
3. Obtain International Securities Identification Number (ISIN)
4. Open Company Demat Account
5. Execute Tripartite Agreement
6. Dematerialisation of Existing Shares
7. Update Register of Members
Successful execution of the steps above requires meticulous attention to detail and coordination with depositories and regulators. This is where Rurash Financials adds immense value. Our team of experts manages the entire procedure for dematerialisation of shares of private companies on your behalf. Let us handle the complexities while you focus on your business.
Who Must Dematerialise Shares?
All private companies in India are now required to adopt dematerialisation of shares, except for small companies with a paid-up capital of ₹4 crore or less, and an annual turnover not exceeding ₹40 crore, as well as government-owned companies. Additionally, promoters, directors, and key managerial personnel must first complete the dematerialisation of shares of private companies for their own holdings before any further allotments, transfers, or issuance of shares can take place, ensuring compliance and seamless corporate governance.
Benefits of Dematerialisation for Private Companies
The dematerialisation of shares of private companies brings several important benefits that go beyond mere compliance. By eliminating physical share certificates, companies significantly reduce the risk of fraud, forgery, and duplication, while also simplifying record-keeping. Transfers of shares becomes faster and more secure, allowing both the company and shareholders to execute allotments and transfers with ease. Additionally, dematerialisation of shares of private companies streamlines regulatory reporting, ensuring that statutory filings and updates to the Register of Members are accurate and timely. Overall, adopting dematerialised shares enhances shareholder confidence, strengthens corporate governance, and positions the company as a modern, transparent, and investor-friendly organisation.
Costs Involved
The dematerialisation of shares of private company involves certain costs that the companies should plan for. Depositories such as NSDL and CDSL levy a one-time joining fee, annual custodial charges, and a security deposit, typically equivalent to two years of annual charges. In addition, Registrars and Transfer Agents (RTAs) charge annual service fees, which vary depending on the company’s size and the total share capital under management. Proper budgeting for these costs ensures a smooth and compliant dematerialisation process.
Key Consequences of Non-compliance:
Restrictions on Securities Transactions: Companies that fail to comply with Rule 9B of the Companies Act, 2013, will be barred from issuing or allotting any type of securities, including bonus issues or buybacks.
Limitations for Shareholders: Shareholders holding physical shares cannot transfer, sell, or subscribe to securities, and may lose eligibility for rights issues or dividends.
Even in the absence of immediate share transfers or new issuances, is it extremely important to be compliant. Establishing the necessary Demat accounts and completing the procedure for dematerialisation of shares of private company mitigates procedural delays and ensures operational readiness for any future corporate actions. The compliance safeguards the company from regulatory scrutiny, sanctions, and management overhead, making it a proactive step in strengthening corporate governance.
FAQs
- What does dematerialisation of shares of private companies mean?
It is the conversion of physical share certificates into electronic form, held in a Demat account, to enable secure and efficient transactions (Source).
- Is dematerialisation of shares mandatory for private companies in India?
Yes, all private companies, except small and government-owned companies, must dematerialise shares by June 30, 2025. (Source).
- Which type of private companies are required to dematerialise their shares?
Private companies exceeding ₹4 crore paid-up capital or ₹40 crore turnover, are required to get their shares dematerialised.
- What are the benefits of dematerialisation for private companies and shareholders?
Dematerialisation of existing shares ensures enhanced transparency, faster transfers, accurate regulatory reporting, and improved corporate governance.
- How can a private company start the dematerialisation process?
A private company can go about dematerialising its shares by amending its AoA, appointing a RTA, obtaining ISIN, opening company Demat account, executing tri-partite agreement, and dematerialising existing shares. - Do all shareholders of a private company need to open Demat accounts?
Yes, shareholders must have Demat accounts to receive credit of their dematerialised/ electronic shares. - What is the timeline for private companies to complete dematerialisation of shares?
The deadline was June 30, 2025
- What happens if a private company does not dematerialise its shares?
Non-compliance can lead to penalties, restrictions on share transfers, and reputational risks. - Can existing physical share certificates be used after dematerialisation becomes mandatory?
No, all transactions must be in electronic form post-deadline. - What are the costs involved in dematerialising shares of private companies?
The costs include depository fees (NSDL/CDSL) and RTA charges, which vary based on company size and share capital.
Conclusion
The dematerialisation of shares of private companies is no longer optional as it is a compliance imperative that ensures transparency, regulatory alignment, and improved shareholder trust. Private companies must prepare by adopting the right structure, appointing RTAs, and educating shareholders on the transition.
By following the correct procedure for dematerialisation of shares of private companies, businesses safeguard their operations against penalties while strengthening corporate governance.
At Rurash Financials, we help investors and companies seamlessly navigate the dematerialisation process with end-to-end support. Connect with us today to make your shares future-ready.