Dematerialization or Demat in short is the process through which an investor's physical share certificate gets converted to electronic format which is maintained in an account with the Depository Participant. A depository is responsible for holding the securities of a shareholder in electronic form.
- Is dematerialization compulsory for private companies?
Recently,
by way of a notification dated 27 October 2023 (Amendment), the
Ministry of Corporate Affairs (MCA) amended the Companies (Prospectus
and Allotment of Securities) Rules, 2014 (PAS Rules), inserting a new
rule 1, to require every private company (other than small company and
government company) (Private Company) to dematerialise all its
securities, issue securities only in dematerialised form and permit
transactions in securities only in a dematerialised form.
Benefits of Dematerialization?
- Elimination of risks associated with physical certificate
- Improving the corporate governance system
- Preventing malpractices
- Exemption from payment of stamp duty on transfer
- Ease in Transfer, Pledge, etc.
- Ease in Mergers and Consolidation of Companies
- Loan against securities which are held in a DEMAT by offering it as a collateral to the lender
- Paperless
- Nomination Facility