Issuing DEMAT Shares Of A Private Limited Company In India

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Issuing DEMAT Shares Of A Private Limited Company In India

When the shareholder of a company gets physical share certificates converted into electronic balances, the process is termed as demat or in simpler terms dematerialisation.

Often it has been noted the investors encourage the share-holder to get the physical certificates converted into demat shares. In some cases it is mandatory as well for companies seeking to raise equity funds. So how does the entire process work Read on

What are the Benefits of Demat shares

• It is the safest way to hold shares of any company. As one cannot mutilate or steal them.
• The process is so convenient that one can easily change the physical entity of the shares, electronically
• The transfer of shares happen almost instantly, if there is authorization
• One of the most important features is that there is no stamp duty when you transfer shares
• There is definitely no fear of bad delivery of shares, fake share certificates, delays and even missed certificates
• Absolutely no paper work, needed in some cases but even that is minimal
• Reduced transaction and legal cost
• It is so feasible that a shareholder has the liberty to transfer even one share
• Ownership information, change of address and other paraphernalia can easily be maintained
• In case of stock split of bonus, the amount automatically gets credited into the account of the shareholder
• Even one single demat account of one investor can hold two or more securities

How to convert into demat shares

Depository is an organization which maintains the security of investors in electronic form. All this is done at the request of the investors. Currently in India, there are two registered depositories which come under the SEBI.

These are (a. National Securities Depository Limited (NSDL) and (b. Central Depository Services (India) Limited (CSDL). It must be noted here that the investors do not have the liberty of directly trading through these depositories and must involve depository participant through whom it works with the investors and provides depository services.

Many public financial institutions, commercial banks, stock-brokers, clearing corporations and NBFCs are registered as Depository Participants. The only requirement is that all these institutes must comply with the requirements of SEBI.

Both NSDL and SDSL have got so many depositories which help the investors to deal. When it comes to converting the shares of a private limited company into demat form, the company and the investors enter and agreement with depository participants.

When A Private Limited Company Becomes an Issuer

A private limited company registration can only offer demat facility to its shareholders if it has submitted the securities to the NSDL. This involves the company getting into a contract with an existing Registrar and Transfer Agent who communicates with the NSDL for shares, credit and transfers.

Documents needed:-

• Letter of intent/Master Creating Form (MCF)
• Audited Balance Sheet of the last two years that have been certified
• True copy of Memorandum of Association and Articles Association
• Confirmation letter assigned by R&T agent
• New worth certificate true copy issued by a Chartered Accountant
• Undertaking from the company
• List of authorized signatory with Board Resolution with specimen signature
• In cases where the company is admitted in CDSL, the ISIN activation letter from CDSL to be submitted

Fee structure

The joining fees those companies which are unlisted us Rs 30,000 excluding service tax. There is also an annual fee for issuer of listed securities. It accounts to Rs 8 per folio (ISIN position) in NSDL. There are certain minimum amounts, written below.

• Rs 6,000 for an amount upto 5 crore
• Rs 15,000 for an amount above 5 crore and upto 10 crore
• Rs 30,000 for an amount above 10 crore and upto 20 crore
• Rs 50,000 for an amount above 20 crore

Investor Account of Shareholders

Apart from company becoming an issue, the shareholders of the company are required to become an investor under a depository participant to keep their shares of the company in electronic shares. Shareholders are also required to open a Beneficial Owner (BO) account with any depository participant of a depository.

Procedure needed to open a shareholder demat account

The first step for opening a demat account is that the shareholder must complete a benefical owner application form to the depository participant along with copies of all the proofs. Now even PAN card is mandatory if you wish to open a beneficial owner account for all investors.

Upon approval of the application, the investor is required to sign an agreement with depository participant giving details and rights and duties of investor and depository participant. Once the account is open, the depository participant will provide the investor with further details like charges, account details, and a unique account number, also known as BO ID (Beneficial Owner Identification Number).

It must be noted that it is this number which is to be quoted for all future transactions.

These are the various charges paid by the investor for getting his shares converted into demat

• First time charge when you enrol for it
• Annual account maintenance charges
• Transaction fees whenever a transaction is done

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