De-materialization of Securities & Shares
Why is De-Materialization needed?
It’s very hard to keep track of paper-based documents. Moreover, the increasing amount of papers may lead to missing one or the other important documents. It can sometimes cause the breakdown of the Indian Share Market and any businesses associated with it. Not only that, in case of a share transfer, 0.5% is set aside for stamp duty. If you lose the original certificates, it saves time and money in obtaining duplicate certificates. Shares de-materialized receive credits and bonuses right into their account; hence no chances of loss in transit followed by fewer interest charges for loans associated with Demat accounts.
Why is De-Materialization needed?
In this plan we shall help you in de-materializing your shares & securities.
15 to 20 working days
- Drafting of Documentation
- Filing of Forms with departments
- Companies who want to Dematerialize their shares.
- Purchase the plan
- Provide details required
- Get support in preparing and arranging the documents
- TAXAJ files Forms and necessary agreements on your behalf
1. Application for admission as Issuer of Eligible Securities
2. Net worth certificate from a Chartered Accountant as per audited annual report for the last financial year.
3. Certified true copy of Board Resolution mentioning name of signatories who are authorized by Board to execute documents and list of Authorised Signatories along with specimen signature.
4. Confirmation letter from Registrar & Transfer Agent
5. Certified true copies of Memorandum & Articles of Association along with Certificate of Incorporation.
6. Certified true copy of Audited annual report for the last financial year.
7. If company has issued equity shares after latest balance sheet in that case company has to provide us certified true copy of PAS‐3.
8. If there is any variation in face value of shares or reduction in capital after the last balance sheet date in that case company has to provide certified true copy of SH‐7.
9. In case of Private Limited Companies Additional Documents in form of Undertaking is required.
Process of De-materialization Explained:
The De-materialization starts with opening a Demat account.
So, let’s first see how to create an account.
Process of Dematerialization
- The Dematerialization starts with opening a Demat account. So, let’s first see how to create an account.
- Select a depository participant (DP): Most financial institutions and brokerage service firms are referred to as Depository Participants.
- Fill an account opening form: You need to fill an account opening form to open a Demat account. This includes basic contact information.
- Submit documents for verification: You need to submit a copy of your income proof, identity proof, address proof, active bank account proof and one passport-sized photograph for verification. All copies of documents need to be duly attested.
- Sign a standardized agreement with the DP: A standardized agreement will contain the rules and regulations, charges you will incur and the terms and conditions of the agreement between you and the depository participant.
- Verification of documents: A staff member from the DP will verify all the documents that you have submitted in your application.
- Demat account number and ID are generated: Once all your documents have been verified, your Demat account number and ID will be generated. You can use this information to access your online Demat account.
Now that you’re aware of what dematerialized shares are and why they are advantageous, let’s take a brief look at the basic process involved in the conversion of physical shares to demat form.
Open a Demat account
Before placing a formal request for conversion, you will have to first initiate the trading account opening process with a depository participant (DP). There are several DPs like IIFL, who offer free demat account opening online services. Listed below are the general steps involved in the demat and trading account opening process trading account opening process with a depository participant (DP). There are several DPs like IIFL, who offer free demat account opening online services. Listed below are the general steps involved in the demat and trading account opening process.
- Step 1: Visit the website of your preferred DP. Depository participants like IIFL provide you with free demat account opening online services, allowing you to open a trading and demat account quickly and effortlessly.
- Step 2: Click on the 'open a demat and trading account' link.
- Step 3: Fill in the demat and trading account opening application.
- Step 4: Upload scanned copies of all the necessary Know Your Customer (KYC) documents.
- Step 5: Sign the agreement with your DP along with the schedule of charges. This agreement contains the duties and responsibilities of both the depository participant as well as the account holder. Therefore, it is a good idea to read them thoroughly before affixing your signature.
- Step 6: Once all the relevant documents are submitted, your application will be processed by the DP.
- Step 7: Upon successful approval of your demat and trading account application, you will receive a unique user ID and password for accessing your trading account along with a demat account number.
Raise a request for dematerialization of shares
Once you open a demat account, you need to place a request for conversion of your physical share certificates into dematerialized format. The steps mentioned below will give you a fair idea of how to raise a dematerialization request with your DP.
- Step 1: Get in touch with your depository participant for a Dematerialization Request Form (DRF).
- Step 2: Fill up the DRF with all the required details and affix your signature. Forward the duly filled form along with your physical share certificates to your DP. You’re required to mention ‘Surrendered for Dematerialization’ on each of the physical share certificates.
- Step 3: Your DP will process your request once they receive the DRF along with the surrendered share certificates.
- Step 4: A dematerialization request is sent by your DP to the company’s appointed Registrar and Share Transfer Agent (RTA).
- Step 5: Once the dematerialization request is approved, your physical share certificates are destroyed and your demat account gets credited with the relevant number of shares.
Benefits of Dematerialization
- Easy and Convenient
- Fund Transfer
- Safe and Secure
- Nomination Facility
- Avail Loan Facility
- Easily Traceable
- Ease In Receiving Corporate Benefits
- Multiple Purposes
A Demat account provides you the facility to carry out the transactions electronically. There is no need for you to be physically present at the broker’s place to settle a transaction. Moreover, the investor can have access to the Demat account using a computer or smartphone. In addition, you can convert your physical holdings into electronic format to become the legal owner of your shares.
By linking your Demat account with the bank account you can easily transfer funds electronically. This saves you from the hassles of drawing a cheque or transferring the funds manually.
Demat account is the most secure and safest way to carry out transactions by electronic means. All the risks like theft, damage, loss of share certificates, etc. that were associated with holding shares in physical form are completely eliminated.
Demat account provides you the facility to grant the right to operate your Demat account to the nominee in your absence. With this facility, you can carry out transactions in your Demat account with the help of a nominee when you are not in a situation to do it yourself.
One of the main benefits of using a Demat account is that it excludes the need for paper. Since the Demat account is about holding shares or securities in electronic form, the need for the paper is almost zero. In addition, the Demat account has also proved to be very useful for the companies in reducing their administrative costs and hassles. Furthermore, cutting down paper usage is also good for the environment.
The Demat account helps you in availing loans against the holdings in dematerialized form. The securities and shares held in Demat account can be kept as collateral and loan can be taken against them.
With the help of a Demat account, you can monitor your portfolio from your home, office or anywhere across the globe. The flexibility to be able to monitor the portfolio performance enhances the chances of you making more profits because of the increase in participation and interest.
Demat account eases the process of receiving various corporate benefits like dividends, interest, refunds, etc. All the benefit amount gets directly credited into the Demat account. Moreover, other benefits like stock splits, bonus shares, rights shares, etc. get directly updated into the Demat account.
In the Demat account, you can not only hold shares or equities but also debt instruments. You can even purchase, hold and sell mutual fund units through the Demat account. In fact, you can even purchase government bonds, exchange-traded funds, etc. in the Demat account
Ministry of Corporate Affairs Notifications
New Delhi, the 10th September, 2018 G.S.R. 853(E).—In exercise of the powers conferred by clause (b) of sub‐section (1) of section 29 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Prospectus and Allotment of Securities) Rules, 2014, namely:-
1. Short title and commencement. ‐‐ (1) These rules may be called the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018.
(2) They shall come into force on the 2nd day of October, 2018.
2. In the Companies (Prospectus and Allotment of Securities) Rules, 2014, after rule 9, the following rule shall be inserted, namely: –
“9A. Issue of securities in dematerialised form by unlisted public companies. – (1) Every unlisted public company shall –
(a) issue the securities only in dematerialised form; and
(b) facilitate dematerialisation of all its existing securities
in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
In order to check applicability of aforementioned rule on debentures, Preference shares and other securities, we refer to the definition of securities as mentioned in regulation 2(h) of the Securities Contract (regulations) Act, 1956 as per the definition securities include- share, scrips, stocks, bonds, debentures. Debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.
Hence the above provision will apply on any type of securities which falls under above definition.
(2) Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promoters, directors, key managerial personnel has been dematerialised in accordance with provisions of the Depositories Act, 1996 and regulations made there under.
(3) Every holder of securities of an unlisted public company, –
(a) who intends to transfer such securities on or after 2nd October, 2018, shall get such securities dematerialised before the transfer; or
(b) who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription.
(4) Every unlisted public company shall facilitate dematerialisation of all its existing securities by making necessary application to a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 and shall secure International Security Identification Number ISIN (International Securities Identification Number) is a unique 12-digit alphanumeric identification number allotted for each type of security and shall inform all its existing security holders about such facility.
(5) Every unlisted public company (Here the unlisted public company includes the private company which is wholly own subsidiary of a public Company) shall ensure that –
(a) it makes timely payment of fees (admission as well as annual) to the depository and registrar to an issue and share transfer agent in accordance with the agreement executed between the parties;
(b) it maintains security deposit, at all times, of not less than two years’ fees with the depository and registrar to an issue and share transfer agent, in such form as may be agreed between the parties; and
(c) it complies with the regulations or directions or guidelines or circulars, if any, issued by the Securities and Exchange Board or Depository from time to time with respect to dematerialisation of shares of unlisted public companies and matters incidental or related thereto.
(6) No unlisted public company which has defaulted in sub-rule (5) shall make offer of any securities or buyback its securities or issue any bonus or right shares till the payments to depositories or registrar to an issue and share transfer agent are made.
(7) Except as provided in sub-rule (8), the provisions of the Depositories Act, 1996, the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 and the Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 shall apply mutatis mutandis to dematerialisation of securities of unlisted public companies.
(8) The audit report provided under regulation 55A of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 shall be submitted by the unlisted public company on a half-yearly basis to the Registrar under whose jurisdiction the registered office of the company is situated.
(9) The grievances, if any, of security holders of unlisted public companies under this rule shall be filed before the Investor Education and Protection Fund Authority.
(10) The Investor Education and Protection Fund Authority shall initiate any action against a depository or participant or registrar to an issue and share transfer agent after prior consultation with the Securities and Exchange Board of India.
Operation in Depository System: –
The operations in the Depository System involve the participation of a Depository, Depository Participants, Company/Registrars and Investors. The company is also called the Issuer.
A Depository (NSDL and CDSL) is an organization where the securities on an investor are held in electronic form, through Depository participants.
A Depository Participant is the agent of the Depository and is the medium through which the shares are held in the electronic form. They are also the representatives of the investor, providing the link between the investor and the company through the Depository.
In both systems, the transfer of funds or securities happens without the actual handling of funds or securities. Both the banks and the Depository are accountable for safe keeping of funds and securities respectively.
Frequently Asked Questions
- How long it takes to dematerialise the shares?
- Can multiple accounts be opened?
- Do I need to maintain any minimum balance of securities in my account with DP?
- Can an investor close his one Demat account and transfer all securities to a different account with another DP?
- Can I convert my electronically held Demat shares back into physical form?
Dematerialisation will ordinarily take around 30 days. On the off chance, if the process takes more than 30 days, you must contact your DP. If he can't support you, at that point you can send your complaint to the individual Investor complaint cell of NSDL or CDSL.
YES, A trader can open more than one account in a similar name with a similar DP and furthermore with various DPs. For all these accounts, the financial specialist needs to carefully consent to KYC standards including Proof of Identity, Proof of Address necessities as stipulated by SEBI and furthermore give PAN number. The trader needs to show his PAN card at the hour of opening of Demat account.
No. The depository has not directed any minimum balance. You can have zero balance in your account.
Yes. The investor can submit an account closure request to his DP in the given form. Further, the DP will transfer all the securities lying in the account, as per the instruction, and close the Demat account.
Yes, you can convert your Demat holdings into physical form. You need to submit a Rematerialsation Request Form (RRF) through your DP in the same manner as Dematerialisation. Upon receipt of such a request from the DP, the R&TA of the company will issue share certificates to you. However, before the transfer of such shares, the same will have to be dematerialized as per the process.