MCA mandates demat of securities for not Small Companies

MCA has mandated private companies (which are not Small Cos.) to issue securities (not just ‘shares’) only in demat form and facilitate demat process for all its securities. Presently, the said provisions are applicable to unlisted public companies.

Now, the said provision is applicable to companies other than Small Cos., which includes: Foreign subsidiary company, Domestic subsidiary company, Section 8 Cos., domestic holding company, companies governed by any special Act. As per Govt. Notification, Govt. Cos. are also exempted.

The said applicable Private Cos. shall comply with the said provisions by September 30, 2024 (18 months from March 31, 2023).

The said Cos. shall ensure that entire holding of securities of its promoters, directors, Key Managerial Personnel have been dematerialised before making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer.

Preliminary analysis:

The provisions ought to have been applicable from the date of notification, as 7 months out of 18 months are already over. Section 8 Companies and wholly-owned subsidiary companies ought to have been exempted from this amendment. Now, the stamp duty on issue and transfer of securities for such companies shall be in accordance with June 2020 notification, which provides for payment and collection of stamp duty. One-time and on-going cost of compliance would be another factor for this amendment.