Government makes demat mandatory for issue and transfer of shares
Union Ministry of Corporate Affairs (MCA) has mandatory for unlisted public companies to issue new shares or transfer of all shares in dematerialised or demat (i.e. in electronic form) form beginning October 2, 2018. With this, major benefits of dematerialisation of securities will now be available to unlisted Public companies.
The Companies Act 2013, provides for government to mandate that as in case of listed public companies other classes of public companies should also issue securities only in dematerialised form. MCA’s latest step is seen as measure for further enhancing transparency, investor protection and governance in the corporate sector. It also comes at a time when the ministry is clamping down on shell companies that are suspected of being conduits for illicit fund flows
Major benefits of dematerialisation of securities
It will help in elimination of risks associated with physical certificates such as loss, theft, mutilation, fraud etc. It will help in improving corporate governance system by increasing transparency and preventing mal-practices such as benami shareholding, back dated issuance of shares, etc. It will also ease in transfer, pledge etc. of securities and provide exemption from payment of stamp duty on transfer.
According to Companies Act 2013, a public company is formed by seven persons or more, while for private company this number is two or more. If shares of such companies are not traded on stock exchange, they are called unlisted companies.