Unlisted firms may have to issue shares only in demat form

New Delhi: The government will soon make it mandatory for unlisted companies to issue new shares only in the dematerialised form, senior officials said, amid intensified efforts to fight the black money menace.

Besides, the unlisted corporates would have to ensure that shares are transferred only in dematerialised (demat) or electronic form.

Initially, these regulatory requirements, expected to be effective from the first week of October, would cover more than 70,000 public companies, two senior government officials told PTI.

Officials said that to begin with, issuance of new shares and transfer of shares by unlisted companies would have to compulsorily be in the demat form and that the decision had been taken after extensive discussions with stakeholders.

With respect to issuance of bonus shares and stock split also, the entities would have to issue them in the demat form, they added. The proposed move would help in enhancing transparency in ownership at corporates, curb benami transactions and bolster the efforts to weed out shell companies that are allegedly used for illicit activities, they said.

Boost to KYC

According to the officials, having shares in the dematerialised form would also bolster the know your client (KYC) framework for unlisted companies and prevent instances such as pledging of duplicate shares.

The Ministry also held extensive deliberations with market regulator SEBI on the matter of unlisted companies having their shares in the dematerialised form, the officials said.

One of the officials said the Corporate Affairs Ministry held discussions with depositories as well as registrars to an issue and transfer agents.

They have been asked to keep costs at a minimum for conversion of shares from physical form to dematerialised form by the unlisted companies, the official added. At present, listed companies need to have shares in electronic form but it is not compulsory.