In a recent move by the Ministry of Corporate Affairs, it has notified dematerialization of shares for all public unlisted companies which means that a company which might be unlisted but public has to take necessary actions for dematerialization of shares from 2nd October 2018. 

The Ministry of Corporate Affairs issued Companies (Prospectus and Allotment of Securities) (Third Amendment) Rules, 2018 on 10th September 2018. As per the notification, every unlisted public company shall issue securities (equity, preference, debentures) only in dematerialized form. At the same time, the companies should also take steps to dematerialize the existing securities. 

The Govt. intends to clamp down the shell companies by implementing a stricter regime thereby implementing the systems most favourable to the shareholders and other stakeholders which would also enhance transparency, investor protection and governance in the corporate sector and dematerialization of shares is a step towards it.  

What next? 

The unlisted public companies shall dematerialize the existing securities and shall procure ISIN (International Security Identification Number) for each type of security, and the same shall be informed to the holders of each security. 

Effect:

If at any time on or after 2nd October 2018, a security holder of an unlisted public company intends to transfer such securities, it shall only be allowed after the dematerialization is done. Moreover, in case a security holder intends to subscribe to securities of unlisted public companies, it shall be mandatory for the security holder to get his present physical holding converted into demat before applying for such subscription.