Compulsory Demat of Shares for Private Companies: Rule 9B Explained

I'm a Chartered Accountant and Company Secretary, and over the past couple of years I've fielded that compulsory demat of shares for private companies is the same anxious question from a lot of founders: "Wait, is demat actually mandatory for us now?" For most private companies, yes. The Ministry of Corporate Affairs inserted Rule 9B into the Companies (Prospectus and Allotment of Securities) Rules, 2014 through a notification dated 27 October 2023, and it made dematerialisation compulsory for every private company that isn't a "small company" (MCA notification via TaxGuru, retrieved 2026-09-22). That's not a suggestion or a best practice anymore.

It's a statutory obligation with a real penalty attached, and a lot of companies still haven't dealt with it. If you're looking for a general explanation of what dematerialisation is and how the DP/RTA process works, I've covered that separately in Procedure of Dematerialization of Shares. This post is narrower and more specific: it's about compulsory demat of shares for private companies under Rule 9B specifically, who it applies to, the small-company exemption and its current thresholds, the deadline that already passed, and what to do if your company is still sitting on physical share certificates.

🔑 Key Takeaways

• Rule 9B makes demat mandatory for every private company that isn't a "small company," effective from MCA's notification dated 27 October 2023.

• The current small-company exemption threshold (since 1 December 2025) is paid-up capital up to ₹10 crore and turnover up to ₹100 crore, not the older ₹4 crore / ₹40 crore figures many guides still quote.

• The original compliance deadline of 30 September 2024 was extended to 30 June 2025, and that date has now passed.

• A non-compliant private company can't issue new securities, do a bonus issue, buyback, or rights issue, and its shareholders can't transfer shares, until it dematerialises.

• Penalties run to ₹10,000 plus ₹1,000 per day of continuing default (capped at ₹2 lakh for the company and ₹50,000 per officer in default) under Section 450 of the Companies Act.

• Compliance isn't a one-time task. Once you have an ISIN, you're on the hook for a half-yearly PAS-6 reconciliation filing, indefinitely.

Why This Rule Exists

MCA wants private companies of meaningful scale to keep the same traceable, tamper-resistant share records that listed and larger unlisted public companies already maintain. Physical certificates are easy to lose, easy to forge, and a genuine source of shareholder disputes in closely held companies. Rule 9A did the same job for unlisted public companies back in 2018. Rule 9B just extends that logic downstream, to private companies with real scale.

Which Private Companies Does Rule 9B Actually Cover?

Here's the point I lead with when a client asks: if your company is private, incorporated under the Companies Act, and you were not a "small company" as per your audited financials for any financial year ending on or after 31 March 2023, Rule 9B applies to you. It doesn't matter whether you're a family-run manufacturing business, a startup with institutional investors, or a professional services firm. Size, not sector, is the trigger.

The rule text is specific about the mechanics: a private company that, as on the last day of a financial year ending on or after 31 March 2023, is not a small company per its audited financial statements, must comply with Rule 9B within eighteen months of the close of that financial year (TaxGuru analysis of the Second Amendment Rules, retrieved 2026-09-22). That's where the original 30 September 2024 deadline for FY 2022-23 companies came from, and it's also why the obligation isn't a one-time snapshot. Every year a company's status gets checked again. If a small company outgrows the exemption in a later year, the eighteen-month clock starts running for that year instead.

There's one more thing I make sure clients understand: this obligation is separate from whatever your Articles of Association say about share transfer restrictions. A private company can still restrict who its shares get transferred to. What it can't do anymore, if Rule 9B applies, is keep those shares in paper form.

The Small Company Exemption: Get the Current Numbers Right

This is where I see the most confusion, and it's exactly the kind of mistake I'd rather flag directly than let a client discover the hard way. A "small company" under Section 2(85) of the Companies Act is exempt from Rule 9B for as long as it stays small. But the definition of "small company" itself has moved twice since Rule 9B was introduced, and a lot of the articles still circulating online quote the outdated figures.

When Rule 9B was notified in October 2023, the operative small-company thresholds were the ones set by the Companies (Specification of Definition Details) Amendment Rules, 2022, effective 15 September 2022: paid-up share capital not exceeding ₹4 crore, and turnover not exceeding ₹40 crore (Corporate Professionals, retrieved 2026-09-22).

That's no longer the current figure. MCA revised the definition again through the Companies (Specification of Definition Details) Amendment Rules, 2025, notified via Gazette notification G.S.R. 880(E) on 1 December 2025. As of that date, a small company is a non-public company with paid-up share capital up to ₹10 crore and turnover up to ₹100 crore (Taxmann, retrieved 2026-09-22; SCC Online, retrieved 2026-09-22). That's a meaningful jump, and it means some companies that were required to comply with Rule 9B under the old thresholds may now qualify as small under the current ones. It doesn't retroactively undo an obligation you've already completed, but if you're assessing your status for the first time today, use the current ₹10 crore / ₹100 crore figures, not the ₹4 crore / ₹40 crore ones.

One qualification that trips people up: a company doesn't get to claim small-company status just because its numbers are under the cap. Under Section 2(85), holding companies, subsidiary companies, and Section 8 (not-for-profit) companies are never treated as small, regardless of how low their paid-up capital or turnover is. If your private company is a subsidiary of any other company, foreign or Indian, the small-company exemption isn't available to you at all.

When Did Private Companies Have to Comply?

For most companies whose non-small status first showed up in the FY 2022-23 audited financials, the original deadline under Rule 9B(2) was 30 September 2024, eighteen months after the close of that financial year. MCA extended that deadline through a further amendment notified on 12 February 2025, pushing it out to 30 June 2025 (IndiaFilings, retrieved 2026-09-22).

That extended date has now passed. If your company became "not small" based on FY 2022-23 or FY 2023-24 financials and hasn't dematerialised its shares yet, you're already past your compliance deadline, not approaching one. I'll get into what that actually means for you further down, but I don't want to bury the point: this isn't a future to-do item for most companies reading this, it's an overdue one.

If your company only recently crossed the small-company thresholds, say, your FY 2025-26 turnover pushed you past ₹100 crore for the first time, your own eighteen-month window runs from that financial year-end, not from the original 2023 deadline.

What Compliance Actually Involves

The process itself isn't complicated, but it does involve more than one party and a few sequential steps that each take real time, so I always tell clients to start well before any deadline they're tracking.

1. Appoint a Registrar and Share Transfer Agent (RTA) and choose a depository, either NSDL or CDSL. Most private companies don't have an existing RTA relationship, so this is usually the first new vendor engagement.

2. Pass a board resolution authorising the company to apply for an International Securities Identification Number (ISIN) for each class of securities it has issued.

3. Execute a tripartite agreement between the company, the RTA, and the depository. This is the document that actually connects your company's share register to the depository system.

4. Apply for and obtain the ISIN. Once issued, this becomes the reference number every demat holding of your company's shares is tied to.

5. Notify shareholders and give them the practical steps to open demat accounts of their own with a Depository Participant (DP), if they don't already have one, and submit a Demat Request Form to convert their physical certificates.

6. Track completion. Not every shareholder converts on day one. The company needs to keep following up, because the restrictions described below apply per security, and a single shareholder sitting on physical shares can hold up transactions involving those specific shares.

Once you have your ISIN, the job isn't done. Rule 9B(5) pulls in the same half-yearly reconciliation requirement that applies to unlisted public companies under Rule 9A: Form PAS-6, certified by a practising company secretary or chartered accountant, due within 60 days of the close of each half-year, so by 29 November for the April-September half and by 30 May for the October-March half (ComplianceCalendar, retrieved 2026-09-22). I mention this because I've had more than one client treat ISIN issuance as the finish line, then get caught out six months later for missing the first PAS-6 filing.

What Happens If You Don't Comply

This is the part that actually gets a founder's attention, and it's worth being specific rather than vague about it.

Corporate action freezes. A non-compliant private company can't issue new securities in any form, private placement, bonus issue, or rights issue, without first getting its existing securities into demat form. If you're planning a funding round and your cap table is still on paper, this becomes a blocker you'll discover at the worst possible time, usually during investor due diligence.

Transfer restrictions on shareholders. Once the compliance window closes, shareholders holding physical certificates can't transfer or gift those shares until they're dematerialised. That's a real problem for a founder trying to do a secondary sale, or for an estate trying to transfer a deceased shareholder's holding.

Statutory penalties. Because Rule 9B doesn't carry its own bespoke penalty clause, Section 450 of the Companies Act applies by default: a penalty of ₹10,000 on the company and on every officer in default, plus a further ₹1,000 for each day the default continues, capped at ₹2 lakh for the company and ₹50,000 for an officer in default (Vinod Kothari Consultants FAQs, retrieved 2026-09-22). Regulators have already started enforcing this in practice: in a July 2026 adjudication, an ROC treated a delayed PAS-6 filing as a continuing default and imposed the maximum Section 450 penalty on the company and its officers (Cyril Amarchand Mangaldas, Rule 9B in Action, retrieved 2026-09-22). This isn't a rule sitting unenforced on paper anymore.

Compulsory Demat of Shares for Private Companies: Applicability and Exemptions at a Glance

Sources: MCA Second Amendment Rules, 2023 via TaxGuru; Taxmann on the 2025 small-company threshold revision; MMJC on Nidhi company coverage under Rule 9B; Taxmann opinion on WOS-of-public-company applicability, all retrieved 2026-09-22.

Common Mistakes I See

Treating small-company status as permanent. It's assessed every financial year against that year's audited numbers. A company that was small in FY 2023-24 and crosses the new ₹10 crore / ₹100 crore thresholds in FY 2025-26 has to start its own eighteen-month clock from that later year-end. Don't assume last year's exemption still applies.

Quoting the old ₹4 crore / ₹40 crore thresholds. I still see this figure in circulation, including in some published guides. It was correct between September 2022 and November 2025. It isn't anymore.

Assuming Nidhi companies or WOS entities are automatically exempt. That's true under Rule 9A for public companies. It is not automatically true under Rule 9B, and conflating the two rules is one of the more common errors I come across.

Stopping at ISIN issuance. Getting an ISIN is the visible milestone, but the half-yearly PAS-6 filing is a recurring obligation, not a one-off. I've seen companies get flagged for a missed PAS-6 filing a full year after they thought they were done.

Not accounting for shareholders who never convert. A company can do everything right on its end and still have a handful of legacy shareholders sitting on physical certificates because they never got around to opening a demat account. That's still the company's problem to chase, since it blocks transactions involving those specific shares.

What to Do If You're Still Not Compliant

If your company should have complied by now and hasn't, the honest advice is: don't wait for a bigger deadline, because there isn't one coming. The compliance window already closed for most companies. What matters now is closing the gap as fast as practically possible and being upfront about it if a regulator, auditor, or investor asks.

Start with a straightforward gap assessment: confirm whether you're actually within scope (check your last two years of audited financials against the current small-company thresholds), then move through the same six steps outlined above, RTA and depository selection, board resolution, tripartite agreement, ISIN application, shareholder notification, and follow-through. If you're mid-fundraise or mid-transaction, prioritise this immediately, since it will otherwise stall the deal at due diligence. If a Section 450 penalty proceeding has already started, getting a company secretary or lawyer involved to represent the company's position matters more than trying to resolve it alone.

I'd also flag this to your statutory auditor proactively rather than waiting for them to raise it. Non-compliance is increasingly something auditors are expected to comment on.

Getting Started

Rule 9B isn't going away, and the enforcement pattern I mentioned earlier suggests ROCs are actively checking for it now rather than treating it as a formality. If you haven't assessed whether your company is in scope, or you know you're overdue and haven't started the process, that's worth fixing this quarter rather than next year.

My team at VenturEasy handles Rule 9B compliance end to end for private companies, from the initial applicability check through RTA coordination and the recurring PAS-6 filings. If you'd rather have someone confirm your company's status than guess at it, see our Annual Compliance for Private Limited Companies page, browse our broader Private Limited Company Registration services, or get in touch directly.

For related reading, we've also covered the general dematerialisation process, mandatory compliances for a private limited company, and how compliance obligations compare across private companies, LLPs, and OPCs.

This article is educational and doesn't replace company-specific legal or company secretarial advice. Confirm your company's applicability and exemption status against your own audited financials and the current MCA rules before taking action.