Dematerialisation of Shares of a Private Company (Rule 9B)

01Rule 9B in Plain English

The dematerialisation of shares of a private company means converting paper share certificates into electronic holdings sitting in a demat account, instead of a folio recorded on physical certificates. Rule 9B dematerialisation of shares takes this from optional to compulsory for a large set of private companies.

Rule 9B was inserted into the Companies (Prospectus and Allotment of Securities) Rules by the Second Amendment Rules 2023, effective 27 October 2023. In plain terms it does two things for every private company that is not a small company:

• Issue only in demat: any fresh issue of securities (a further issue, private placement, bonus or rights) must be made only in dematerialised form. You cannot print new physical certificates.
• Facilitate demat of existing shares: the company must convert all its existing securities (Equity Shares, preference shares, debentures) into demat form by appointing an RTA, obtaining an ISIN and getting holders to dematerialise their certificates.

This is the same regime that already applied to listed public companies and, since an earlier 2018-19 rule, to unlisted public companies. Rule 9B simply extends it down to private companies above the small-company size. The intent is a cleaner, tamper-proof register: no lost or forged certificates, faster transfers, easier pledging and a cap table that survives due diligence.

02Who Must Comply and Who Is Exempt

Rule 9B applies to every private company that is not a small company, tested against its audited financials as on 31 March 2023 (FY 2022-23). So the question is simply: was your company a small company on that date? If not, you are in scope.

What counts as a small company

A small company (defined in Section 2(85) of the Companies Act, 2013) is a company (other than a public company) that meets both of these limits:

• Paid-up share capital of up to ₹4 crore, AND
• Turnover of up to ₹40 crore.

Both conditions must be satisfied to stay a small company. Cross either threshold (paid-up capital above ₹4 crore or turnover above ₹40 crore) and you are no longer small, which means Rule 9B applies to you.

The thresholds are only part of the test. The same definition specifically excludes certain companies, which can never be a small company no matter how small their capital or turnover is, and so are always in scope for Rule 9B:

• a holding company or a subsidiary company,
• a company registered under Section 8 (not-for-profit), and
• a company governed by any special Act.

This catches a lot of founders by surprise: a tiny private company with almost no capital or revenue is still not a small company if it is the subsidiary of another company, or if it is itself a holding company. If your company sits anywhere in a group structure, assume Rule 9B applies and you must dematerialise.

If you cease to be a small company later

A company that is small today but ceases to be a small company in a later financial year gets 18 months from the end of that financial year to comply with Rule 9B. This happens not only when you cross the capital or turnover limit, but also the moment you become a holding or subsidiary company (for example, when an investor company takes a controlling stake, or you set up a subsidiary). So a growing startup should watch both the thresholds and its group structure: any of these can start your 18-month clock. Plan the RTA appointment and ISIN before the clock runs down, not after.

03The Deadline Story: Share Dematerialisation Last Date

The share dematerialisation last date under Rule 9B has moved once, and it is worth knowing the timeline because the current position is that the window has closed.

• 27 October 2023: Rule 9B comes into effect through the Second Amendment Rules 2023.
• 30 September 2024: the original compliance date, 18 months from the end of FY 2022-23.
• 12 February 2025: the MCA notifies an extension, moving the date to 30 June 2025.
• 30 June 2025: the extended, and current, last date. This date has now passed.

As of the middle of 2026, the deadline has passed and no further extension has been notified. That has a blunt implication: if your private company was in scope and has not dematerialised its securities, you are already non-compliant. This is not a future deadline to plan around, it is a current default to fix.

04What Non-Compliance Actually Means

Rule 9B does not just carry a penalty; it freezes the corporate actions founders care most about. Until your existing securities are in demat form, the company is boxed in.

• No further issue of securities: you cannot make any further issue (rights, bonus, private placement) until all existing securities are dematerialised. A funding round in physical form is blocked.
• No buyback: the company cannot buy back its securities while non-compliant.
• No physical transfer or allotment: a shareholder cannot transfer or be allotted securities in physical form. Secondary sales, ESOP exercises and transmissions all need demat.
• PAS-6 still applies: the half-yearly PAS-6 reconciliation obligation is triggered for companies in scope, so the filing clock runs whether or not you have completed demat.
• Penalties under the Companies Act: non-compliance attracts penalties on the company and the officers in default under the Act. These accrue while the default continues.
• Due-diligence flag: this surfaces in every financing, secondary and exit. A Rule 9B default is a clean, visible red flag that delays deals and erodes negotiating position.

05Step-by-Step: How to Get Compliant Now

The process to dematerialise a private company’s shares is a defined sequence. Two parts run on the company side (appointing infrastructure) and one part runs on the shareholder side (converting certificates). Here is the route.

The company side

1. Check and amend the Articles of Association: if the AOA restrict or do not permit dematerialisation, amend them by special resolution first.
2. Board resolution and appoint an RTA: pass a board resolution to dematerialise and appoint a SEBI-registered Registrar and Transfer Agent (RTA), such as KFin, Link Intime / MUFG Intime, Cameo or Bigshare.
3. Apply for an ISIN: the RTA applies to NSDL and/or CDSL for an ISIN, submitting the Certificate of Incorporation, MOA and AOA, the board resolution, audited financials, a net-worth certificate, the register of members and directors’ KYC and PAN. A separate ISIN is needed for each class of security.
4. Sign the tripartite agreement: the company, the RTA and the depository execute a tripartite agreement that governs the demat connection. ISIN allotment typically takes about 2 to 4 weeks.

The shareholder side

5. Intimate shareholders: ask every holder to open a demat account with a depository participant (DP), which is usually their bank or broker.
6. Submit the DRF: each shareholder submits a Dematerialisation Request Form (DRF) with the physical share certificates to their DP. One DRF per ISIN per holder; certificate numbers, distinctive numbers, folio and quantity must match the register exactly, or the request is rejected.
7. RTA verifies and confirms: the DP defaces the certificates, generates a Dematerialisation Request Number (DRN) and forwards it to the RTA; the RTA verifies against the register and confirms, and the shares are credited to the shareholder’s demat account. A DRF is typically confirmed in about 15 to 30 days.

06Ongoing Compliance After Demat

Getting your shares into demat is not the finish line; Rule 9B brings a recurring obligation. Once you are in scope, two things become a permanent part of your compliance calendar.

• Half-yearly PAS-6: file the Reconciliation of Share Capital Audit Report (PAS-6) with the ROC within 60 days of the end of each half-year, that is, for the periods ending 30 September and 31 March. It must be certified by a company secretary or chartered accountant and reconciles your issued capital with the holdings recorded by the depositories and the RTA.
• New issues only in demat: from here on, every fresh issue of securities (further issue, rights, bonus, private placement, ESOP allotment) must be made only in dematerialised form. No new physical certificates.
• Keep the RTA relationship live: pay the annual depository custody / issuer fee and the RTA’s annual fee, and route every cap-table change (new allotments, transfers, pledges) through the RTA so the register and the depository stay in sync.

07Frequently Asked Questions