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MCA has notified amendments to PAS Rules - Pvt Ltd Co. to issue shares etc in Demat form only,
MCA bring significant changes to the regulatory framework for private companies in India, especially concerning the issuance and holding of securities in dematerialized form.
- Private companies, excluding small companies, are now mandated to issue securities only in dematerialized form and facilitate the dematerialization process for all their securities. Previously, this provision was applicable only to unlisted public companies.
- The amended provisions apply to various categories of private limited companies, including foreign subsidiary companies, domestic subsidiary companies, Section 8 companies, domestic holding companies, and companies governed by any special Act.
- The determination of small company status will be based on audited financial statements from the financial year 2022-23 onwards.
- Private companies falling under the purview of these amendments must comply with the provisions within 18 months from the closure of the financial year.
- Before making any offer for the issuance of securities, buyback of securities, or issuing bonus shares or rights offers, private companies must ensure that the entire holding of securities of its promoters, directors, and key managerial personnel has been dematerialized.
- Stamp duty on the issue and transfer of securities for such companies will be in accordance with the June 2020 notification, which provides for the payment and collection of stamp duty. This could entail one-time and ongoing compliance costs for companies.
MCA Notifies mandatory dematerialisation for securities of pvt Ltd Co.
The recent notification by the Ministry of Corporate Affairs (MCA) introduces mandatory dematerialization requirements for securities issued by private companies in India. Here's a breakdown of the key points highlighted in the notification:
1. Legal Provision: A new sub-section (1A) was inserted under Section 29 of the Companies Act 2013, granting the Central Government the authority to prescribe classes of unlisted companies for which securities must be held and/or transferred in dematerialized form.
2. Rule Implementation: Rule 9B has been added to the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, to enforce mandatory dematerialization of securities issued by private companies.
3. Applicability: The mandatory dematerialization requirement applies to all securities issued by private companies, except small companies and government companies. Immediate compliance is required, with a deadline for full compliance set for September 30, 2024, providing 18 months from March 31, 2023.
4. Transition for Small Companies: If a company ceases to qualify as a small company after March 31, 2023, the 18-month compliance timeline begins from the end of the financial year in which it loses its small company status.
5. Requirement for Private Companies: Private companies are mandated to issue all securities in dematerialized form and facilitate the dematerialization of existing securities.
6. Depository Application: Private companies must apply to a depository for the dematerialization of all existing securities and obtain an International Securities Identification Number (ISIN) for each type of security.
7. Definition of Small Company: A small company is defined as a company, excluding public companies, with a paid-up share capital not exceeding Rs. 4 crores and a sales/turnover not exceeding INR 40 crores. However, certain entities cannot qualify as small companies, including.
- A company or body corporate governed by any special Act.
- company registered u/s 8.
- A holding company or a subsidiary company.
8. Amendments to the Companies Management and Administration Amendment Rules & PAS Rules:
- Companies are required to designate a person responsible for providing information on beneficial ownership, who could be a company secretary, managing director, key managerial personnel, or director.
- The company must inform the details of the designated person in the Annual Return and intimate changes in the designated person through Form GNL-2.
- Amendments to PAS Rules require companies to submit details of non-converted share warrants within three months and place a notice requiring the surrender of such warrants for dematerialization within six months. Failure to surrender warrants within the stipulated time will result in their conversion into dematerialized form and transfer to the Investor Education and Protection Fund.
These provisions aim to streamline securities management, enhance transparency, and align private companies with contemporary dematerialization practices. Compliance with these regulations is crucial for affected private companies to ensure adherence to legal requirements and avoid potential penalties.
