Dematerialisation of Shares

Dematerialisation of Shares is a process of transferring physical certificates into electronic certificates. The shareholder needs to have an account with a depository participant (DP). An investor has to surrender the certificates owned by him to the DP.

An intimation is sent to the National Securities Depository Limited (NSDL) for sending the securities to the issuer or R & T agent and request for dematerialisation.

The issuer or R & T agent registers NSDL as the holder of securities and the investor as a beneficial owner for communicating the confirmation of a request to NSDL. The NSDL credits the securities in the investor’s account held with the depository participant.

Process of Dematerialisation Of Shares Under Companies Act, 2013

The process for getting the shares dematerialized is given in the following steps:

Step 1 : Clause in Articles of Association

The articles should have a clause regarding authorization for the company for making dematerialized shares. The articles of the company need to be altered when it doesn’t have a specific clause.

Step 2 : Board Meeting must be Convened

The Board of directors should hold a board meeting for selecting and appointing the depository either NSDL or CDSL and the registrar for the issue of new shares or share transfer agent for the transfer of shares and authorizing person for signing the documents. A depository participant is a medium between an investor and a depository. The dematerialisation of shares procedure can be carried out with help of banks, and public financial institutions with the approval of the Reserve bank of India (RBI) and can be registered as DP after complying with the requirements provided by SEBI.

Step 3 : Dematerialisation Request Form (DRF)

An application is a dematerialization request filed by the company to the registrar or share transfer agent in order to carry dematerialization with the certificates and other documents.

Step 4 : Verification of the Form

The form is verified with a number of certificates and a number of securities mentioned by the DP. An acknowledgment with signature and stamp is issued to an investor by the DP.

Step 5 : Scrutinization of the Form

The scrutinizing of form for dematerialisation of shares is done by:

• Verifying the investor’s signature on the form
• Comparing the names on the DRF with the investor’s account
• Paid up status
• International Securities Identification Number
• Status of Lock-in
• Distinctive Numbers

Step 6: When the securities are returned to the investor when not in order.

The request can be rejected in the following cases:

• One DRF is used by more than one company for dematerializing securities
• The certificates are defaced means the information is not in a readable manner.
• If the certificates are partly paid then the DP will reject the request. It can be suggested for making requests of fully paid up and partly paid up separately.
• For dematerialisation of shares; in case of single DRF certificates are locked in, then the DP will return the DRF. It is suggested for sending a separate request for the locked-in shares.

Step 7 : Generation of Dematerialisation Request Number (DRN)

When the securities are aligned in systematic order, then the request is entered in the DP’s software by NSDL and a DRN is generated.

Step 8 : DRN to be entered in the Dematerialisation Request Form

Step 9 :

A person will verify the details for the DRN. The request is forwarded to the Depository module by DPM.

Step 10 :

The DP enters the portion of the Demat Request Form for Dematerialisation of Shares.

Step 11 :

The DP will dispatch the certificates with the request form with a cover letter to the issuer or R&T agent.

Step 12 :

The issuer or R&T agent accepts the request for dematerialisation in the system

Step 13 :

The DM authorizes the formation of credit balances in the investor’s account.

Step 14 :

The DPM credits the account

Step 15 :

The DP shall inform the investor about the changes in the demat account with acceptance of the request.

Step 16 :

The request can be rejected by the issuer or R&T agent and an objection will be sent to the DP. The DP should remove the reasons for objection within 15 days of receiving the same.

Documents Required for Dematerialisation of Shares

• Tripartite Agreement :The company should enter a tripartite agreement with the depository and registrar to the issue or share transfer agent for decartelising with issuing securities
• ISIN Allocation :The depository must facilitate dematerialising and ISIN is the allocation for application with documents
• Company’s obligations :For unlisted public company should pay the fees on time by the depository and registrar or share transfer agent
• The security deposit should be maintained for a minimum of two years with the depository and registrar or share transfer agent
• For compliance with rules and guidelines which are issued by SEBI circular on the dematerialisation of shares for unlisted public companies.
• Net worth certificates by a chartered accountant for the previous financial year
• The issuer of securities as Admission for application
• A certified true copy of board resolution with authorized signatories for executing documents.
• Letter of Confirmation from the registrar and transfer agent.
• A certified true copy of the memorandum and articles of association with a certificate of incorporation
• A certified true copy of the audited annual report for the previous financial year

Process of Filing a Dematerialisation Request Form (DRF)

The following steps are performed for filing a DRF:

• The first step is to fill in the entered phone number with the date of submission of DRF for the dematerialisation of shares.
• There is a unique client ID that has to be mentioned in the form
• Name of the Account holder as given in the Demat account
• Mention the face value as given in the physical share certificate
• Mention the number of shares as per the share certificate
• Enter the ISIN number assigned to the shares, debentures, bonds, etc at the time of admission of the securities to the depository system
• Tick mark one of the two options; free or locked-in securities with the total number of certificates
• Mention the folio number, certificate number and the number of shares.
• Sign the form
• Declaration of true to the best of your knowledge

Benefits of Dematerialisation of Shares

The advantages of dematerialising are given in the following points:

• Safety

The chances of damage or loss to the physical share certificate. With the help of dematerialisation, the shares are stored in a demat account.

• Security

The chances of fraud or duplication are high in the case of physical certificates. Through dematerialising the shares the chances of forgery are zero.

• Transfer

The transfer of shares from one person to another is quick and simple which is not possible with physical shares because it takes time for the transfer process.

• Ease of transactions

The online demat account makes the transaction simple and convenient.

• No Stamp duty

There are no stamp duties on the transfer of securities. The dematerialisation of shares charges is different from bank to bank. However, there are no charges levied by a depository on DP when a beneficial owner transfers securities to another branch of the same DP.

• Automatic Credit into demat account

The bonus or split is credited into a demat account without any physical presence or physical certificates

• Nomination facility

Changes in address with DP where investors holding securities get registered with all the companies where there is a shareholding of investors.

Shares in the dematerialised form help in maintaining a record of a shareholder of companies transparently over beneficial ownership of companies.