Jan 18, 2024

Dematerialization of Shares of Private Companies and Appointment of Designated Persons for Beneficial Ownership

The Indian Ministry of Corporate Affairs has, on October 27, 2023, notified amendments to the (Indian) Companies (Prospectus and Allotment of Securities) Rules, 2014 (“Securities Rules”) and the (Indian) Companies (Management and Administration) Rules, 2014 (“Management Rules”) regarding holding of securities in private companies in India.  The key features of the amendment rules are set out below:

  1. Key Amendments to the Securities Rules:
  • Public companies (with a few exceptions) were already required to issue securities[1] only in dematerialised form and facilitate dematerialisation of all existing securities. The Securities Rules now also require private companies (other than small companies) to comply with these dematerialisation requirements, within 18 (eighteen) months of closure of their financial year ending on or after March 31, 2023 (“Prescribed Timeline”).
  • A holder of securities in such private companies must ensure that securities held by it are dematerialised prior to:
  • a transfer of securities occurring on or after the Prescribed Timeline; and/or
  • a subscription to securities occurring on or after the Prescribed Timeline.
  • A private company making an offer for issue or buyback of securities after the Prescribed Timeline must ensure that before such offer, the securities of its promoters, directors and KMPs[2] have been dematerialised. In complying with the aforesaid, the private company must also comply with the (Indian) Depositories Act, 1996, its relevant rules and circulars and ancillary dematerialization provisions relating to payment of fees, security deposit and filings set out in the Securities Rules.
  1. Key Amendment to the Management Rules:
  • Indian companies, to comply with minimum shareholding requirements under the (Indian) Companies Act, 2013 (“CA 2013”), have multiple shareholders. Such companies (where for example, only 1 shareholder is the primary shareholder for), upon receiving declarations from the primary shareholder and the nominee shareholder(s) to that effect, make filings with the Registrar of Companies (“ROC”) declaring that the beneficial interest in the shares held by the nominee shareholder lies with the primary or beneficial shareholder.
  • The Management Rules now require Indian companies to designate a person to provide information to the ROC/other authorized officer with respect to beneficial interest in its shares, who can be: (a) a company secretary (“CS”) (if required to be appointed); or (b) a KMP (other than the CS); or (c) every director (if there is no CS or KMP). Until such designation, (a) a CS (if required to be appointed); or (b) every managing director or manager (if no CS has been appointed); or (c) every director (if there is no CS or managing director or manager) are deemed to be so designated.
  • Details of such designated person must be disclosed in the annual returns of the company, and changes in such designated person must be informed to the ROC, by way of submitting the relevant prescribed forms.


[1] As per the CA 2013, “securities” in relation to a company include shares, scrips stocks, bonds, debentures, debenture stock or other marketable securities of a like nature.

[2] As per the CA 2013, “key managerial personnel/KMP” in relation to a company, means: (i) the Chief Executive Officer or the Managing Director or the Manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer;  (v) such other officer, not more than one level below the Directors who is in whole-time employment, designated as key managerial personnel by the Board; and (vi) such other officer as may be prescribed.





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