Why Dematerialisation of Shares Mandatory for Private Companies in 2025?

Dematerialisation of shares refers to the process of digitising physical share certificates. In this method, investors transfer their shares in electronic form. The procedure of dematerialisation has become a trendy choice in India. When it comes to managing a physical share, the investor has to bear numerous risks. This happens because a physical or original share certificate has a tendency of getting lost or damaged. Apart from that, there’s also a chance of shares getting misplaced. Later, it creates disruptions related to share ownership and more. Meanwhile, dematerialisation mitigates these issues.

At present, technology is evolving in India, and people in this country are moving towards dematerialisation. Recently, the Ministry of Corporate Affairs (MCA) has undertaken a significant move. They have made the dematerialisation of shares mandatory for private companies. On 12th February 2025, MCA published a notification that extended the deadline for private companies. According to the notification, private companies can dematerialise their shares until 30th June 2025. This notification complies with the Companies Act 2014, Rule 9B. As a result, the businesses can sigh a relief regarding transferring shares in electronic form.

In this blog, you’ll understand why shares dematerialisation has become mandatory for private companies. Apart from that, you’ll also acknowledge the steps of the dematerialisation process.

What is Dematerialisation? 

The dematerialisation of shares is the procedure that allows investors to convert their physical shares into electronic form. Investors in India opt for the dematerialisation process to enhance the safety of their physical shares. In the traditional method, it’s a difficult task to manage all types of share certificates, including multiple documents. Apart from that, the procedure of tracking shares is also a hectic task. In the upcoming days, it may become a critical task. That’s why investors are going for the dematerialisation process. It can streamline the share transmission process in a lively manner. 

In the dematerialisation process, physical shares are converted into digital form. It assists investors in managing their share certificates effectively. The dematerialisation process also saves a certain amount of costs. Not only costs, but it also helps investors save a lot of time. In the traditional method, paperwork is mandatory. Meanwhile, in the dematerialisation process, the need for paperwork is minimal or zero. Sometimes, a physical share can get lost or misplaced. There’s also a chance a physical share certificate can be damaged or destroyed. The dematerialisation process mitigates all these risks and ensures a safeguard to shares.

Benefits of Dematerialisation 

Eases the Procedure 

The dematerialisation process consumes less time compared to the traditional method. You don’t have to commence mandatory legal requirements and paperwork in this method. An investor can manage his/her share certificates by converting them into an electronic form. Dematerialisation ensures an easy process of share transmission.

Security and Safety 

In the old or traditional method, there’s a chance that an original share certificate can get lost or destroyed. Aside from that, there’s also a chance of shares getting misplaced. After opting for the dematerialisation process, investors can protect their share certificates. Dematerialisation provides protection and ensures the safety of original share certificates. The risk related to lost share certificates is also minimal in this method.

Cost Effectiveness 

In the traditional method, investors have to pay a certain amount during the share transfer process. Sometimes, they also have to bear storage charges for their physical share certificate. Apart from that, they also have to pay for handling charges. When an investor chooses the dematerialisation process, they set themselves free from additional charges. In other words, the procedure for the dematerialisation of shares is cost-effective.   

Quick Settlements 

In terms of settlements, it takes a lot of time in the old or traditional method. The investors have to go through numerous legal and mandatory requirements. In the dematerialisation process, investors don’t have to perform numerous mandatory requirements. This method ensures a quick settlement of shares. Furthermore, it prevents any sort of delays and errors in the share transmission process. 

No Need for Paperwork 

Managing shares in the traditional method is a hectic task. Apart from that, an investor has to go through a lot of mandatory paperwork. It is required as per the legal requirements. In the dematerialisation process, there’s no need for paperwork. In fact, there are no paperwork processes involved in this method. As a result, investors can enjoy hassle-free share settlements and enjoy the flow. 

MCA Mandate Explained  

According to the new Companies Act, the Ministry of Corporate Affairs (MCA) mandated a private company that is not a small company to dematerialise its shares. The deadline for the process was 31st March 2023. Recently, as per Rule 9B (2), they have extended the date to 30th June 2025. According to the law, private companies have to complete the dematerialisation process while obtaining an International Securities Identification Number, aka ISIN.

The dematerialisation of shares mandatory for private companies has been a crucial process under the Companies Act. According to Rule 9B, all private companies, excluding small companies, must comply with the dematerialisation process. According to MCA records, as of 31st October 2023, almost 25 lakh companies registered for dematerialisation. Out of them, almost 16 lakh companies are active. Companies that offer new shares or transfer shares should conduct transactions with the help of a dematerialisation form.

Objectives

The objective of this process is to simplify the share transmission process for the companies that have not yet compiled. It may ensure transparency in the market aligned with public companies and regulatory framework. It may improve the investor’s participation and boost digital securities in transactions. 

Why is Dematerialisation Necessary for Private Companies? 

In the dematerialisation process, investors can transform their physical shares into digital form. The shares they were holding will automatically transfer to their Demat account. A private company needs to dematerialise their shares to ensure a seamless process for the investors. It may attract numerous investors across India. Apart from that, it may offer greater transparency in the share market.  

Key Provisions Under Rule 9B  

Any private company in India, except small companies, has to dematerialise their shares. It is necessary for any type of share transfer and alteration of capital structures. To make dematerialisation effective, companies need to obtain ISIN for digital transactions. In addition, private companies have to register with depositories like NSDL and CDSL.

Step-by-Step Procedure of Share Dematerialisation

Choosing Depositories 

When an investor opts for dematerialisation, they have to choose depository participants. It can be a financial institution or brokerage firm. Similarly, when a private company opts for dematerialisation, they have to select a central depository like Central Depository Services Limited (CDSL) or National Securities Depository Limited (NSDL).

In NSDL, there are over 300 depositories while CDSL have almost 600 depositories. NSDL is an ideal choice for large private companies. Meanwhile, CDSL is ideal for small companies and retail sectors. When it comes to fees and charges, the rate is higher in NSDL compared to CDSL. NSDL is popular in south and western India while CDSL is dominant in north and eastern India.    

Compliance Process 

Board Resolution

First, the companies have to amend their Article of Association (AOA). It may include the provisions for holding shares. Shareholders must approve the amendment.

Agreement with Depository and RTA

Next, the private companies should appoint a registrar or transfer agent (RTA). They may work as an intermediary between shareholders, companies, and central depositories. An RTA may improve the conversion of physical shares.

Obtain ISIN

After completing the first two steps, companies have to obtain an ISIN (International Securities Identification Number). They can obtain it from the central depositories.

Notify Shareholders

Next, the private companies need to notify their existing shareholders about the dematerialisation process. 

Open a Demat Account

After that, shareholders have to open a Demat account. They might need to contact a DP and open a Demat account while fulfilling the necessary requirements.

Dematerialise Existing Shares

In this step, shareholders must submit a dematerialisation request form, aka DRF, obtained from their DP. Along with the DRF, they have to submit the physical share certificates.

PAS 6 Reporting

In this step, companies have to prepare a half-yearly report that is known as PAS 6. This ensures that the depositories maintain updated records.

Verification 

Now, the company registrar or RTA will verify the physical share certificates submitted by the shareholders.

Regulatory Filings

Lastly, private companies must maintain a regulatory framework and update their records.

Cost Breakdown 

ISIN Registration Fees: ₹10,000-₹25,000 (one-time fee). 

Annual costs: ₹10,000-₹20,000 (RTA + custodial charges). 

RTA Fees: ₹10 to ₹50 per shareholder.

Depository charges: ₹10 to ₹50

Apart from the above cost, companies have to pay stamp duty and compliance filing fees. These vary from state to state.

Recent Updates on Dematerialisation of Shares 

According to reports, almost 2.3 million new demat accounts were opened as of February 2025. It was 2.8 million in January.

The deadline for the public companies to dematerialise their shares was 30th September 2024. However, recently, they have extended the deadline. The last date for private companies to dematerialise their shares is 30th June 2025.

As of December 2024, almost 1.7 million private companies are registered with MCA. That’s why they’ve extended the date. 

Conclusion  

The Ministry of Corporate Affairs (MCA) has extended the date for the dematerialisation of shares mandatory for private companies. Previously, the date was 30th September 2024. Meanwhile, the current date is 30th June 2025. According to the Companies Act, Rule 9B, private companies that aren’t small have to convert their shares into digital form. It may encourage numerous investors to participate in the share market. Apart from that, it provides transparency to the greater market. 

To convert shares into a digital format, companies need to select a central depository. After that, they have to follow a compliance process. Lastly, they have to pay a certain amount for the dematerialisation procedure.  

In this blog, you’ve discovered the reasons why the dematerialisation of shares has become mandatory for private companies. Apart from that, you’ve also acknowledged the step of the dematerialisation process.

To know more about dematerialisation, visit our website Infiny Solutions today.