The Centre on Tuesday set October 2 as deadline for issuance and transfer of shares of all unlisted public companies.
According to Companies Act 2013, a public company is formed by seven persons or more, while for a private company this number is two or more. If shares of such companies are not traded on a stock exchange, they are normally called unlisted companies.
As on December 20, 2017, there were 11.34 lakh unlisted companies, out of which more than 66 thousand were unlisted public companies. The new norms are aimed at these 66,000 plus companies.
A release by the Corporate Affairs Ministry said that the decision regarding mandatory dematerilsation (shares in electronic form) has been taken for “further enhancing transparency, investor protection and governance in the corporate sector”. The decision also comes at a time when the Ministry is clamping down on shell companies that are suspected of being conduits for illicit fund flows.
The Act provides for the government to mandate that as in the case of listed public companies other classes of public companies should also issue securities only in dematerialised form. Accordingly, the Ministry carried out a consultation with SEBI, depositories and other stakeholders to mandate, in a phased manner, public unlisted companies to issue securities in dematerialised form with a view to bringing in greater transparency in shareholding and share transactions, better acceptance of such shares as collateral and mitigation of disputes and risks associated with securities issued in paper form. SEBI had, in its response, stated that its depository regulatory framework enables such a prescription.
According to the Ministry, elimination of risks associated with physical certificates such as loss, theft, mutilation and fraud, would be a key benefit from the decision on having shares in demat form. Other benefits include, improving the corporate governance system by increasing transparency and preventing malpractices such as benami shareholding, back-dated issuance of shares, exemption from payment of stamp duty on transfer and ease in transfer, pledge, etc, of securities.
“Unlisted public companies are expected to facilitate the dematerialisation of their securities in coordination with depositories and share transfer agents,” the release said, while adding that grievances would be handled by the Investor Education and Protection Fund (IEPF) Authority.