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India – Mandatory dematerialization of shares for private companies
On the 27th of October 2023, India’s Ministry of Corporate Affairs introduced the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023.
With exception of small companies, all private limited companies incorporated in India are now required to dematerialize their shares before or on the 30th of September 2024.
This requirement for dematerialization also applies to shareholders and debenture holders of the private limited companies (with the exemption of small companies).
All further issues and transfers of shares and debentures made after the 30th of September 2024 shall solely be undertaken in dematerialized form.
The risk of non-compliance
Companies who fail to comply with the dematerialization mandate face the following penalties:
- A company will not be able to issue/allot any type of securities;
- A security holder will not be able to transfer or subscribe for any type of security;
- Financial penalties will be levied on the company and every officer in default:
- Company: INR 10,000 + INR 1,000 for each day violation continues. Maximum limit is INR 200,000.
- Defaulting Company Officers: INR 10,000 + INR 1,000 for each day violation continues. Maximum limit is INR 50,000.
Click here for an overview on Navigating Entity Management in India.