Posted on by Nikita Bhatia

Procedure of Dematerialization of Shares

Dematerialization is the process of converting your physical shares and securities into digital or electronic form. The basic agenda is to smoothen the process of buying, selling, transferring and holding shares and also about making it foolproof. All your securities are stored in an electronic form instead of physical certificates.

In this document, you will find the procedure for dematerializing shares and the list of required documents for completing the process for both the company and shareholders.

Procedure

For Company:

Pass a board resolution:

The Company’s board of directors shall pass a resolution to authorize the dematerialization of its securities.

Select Depository Participant (“DP”) and Open Demat Account:

The Company will be required to finalize a DP from a list of registered DPs who will facilitate the entire dematerialization process. Upon obtaining the necessary documents as mentioned above, the DP shall assist the company in opening it’s demat account for the purpose of dematerialization.

A list of registered DPs shall be available on the website of National Securities Depository Limited (“NSDL”) at https://nsdl.co.in/dpsch.php or Central Depository Services (India) Limited (“CDSL”) at https://www.cdslindia.com/DP/dplist.aspx.

Appoint Registrar and Share Transfer Agent (“RTA”):

The Company will be required to appoint an RTA from a list of registered RTAs, who will facilitate the dematerialization process.

RTAs play a significant role in managing the administrative and record-keeping aspects of securities held in electronic form and ensure smooth operations in the demat system.

Execute Tripartite Agreement:

The Company shall enter into a tripartite agreement with the depository and RTA, which shall govern the relationship among the parties and the outline scope of services to be undertaken by each of them. This agreement will also outline the terms and conditions of the dematerialization process.

Activate International Securities Identification Number (“ISIN”):

Upon submission and verification of all the documents with the DP and RTA, the depository will issue or activate the ISIN, i.e., a unique code to distinguish one security from another, facilitating trading, settlement, and record-keeping in the financial markets.

Inform the shareholders:

The shareholders of the company must be informed about the decision to dematerialize its shares and the process involved. Also, the company should provide instructions and assistance to shareholders on how to open Demat accounts with DPs.

Ensure the completion of process:

The Company must ensure that all shares are successfully dematerialized and update its records to reflect the change. Once the shares are in demat form, the company can facilitate electronic trading and the transfer of shares.

For Share Holders:

Select a Depository Participant (“DP”):

The first step is to select a registered DP. A list of registered DPs shall be available on the website of NSDL at https://nsdl.co.in/dpsch.php or CDSL at https://www.cdslindia.com/DP/dplist.aspx.

 Open a demat account:

The shareholders shall provide their KYC documents to their selected DPs, along with other specific documents as may be listed by the DP in this connection, for the purpose of opening a demat account.

Submit Dematerialization Request:

The shareholder shall submit the Dematerialization Request Form (“DRF”) to the DP along with the physical share certificate and other supporting documents as may be required.

Verification of DRF:

The DP shall verify the information provided in the DRF and the documents submitted along with it to ensure they are authentic and meet regulatory requirements. Once the verification is complete, the DP will forward the dematerialization request to the respective depository.

 Confirmation and Record Update:

Once the depository verifies and approves the dematerialization request, the physical shares are cancelled, and the equivalent electronic shares are credited to the shareholders’ Demat accounts.

Documents Required

For Company

  • Certified True Copy of Board Resolution for dematerialization of securities.
  • List of authorized signatories and request letter for dematerialization.
  • Application for admission as Issuer of Eligible Securities as per the format provided by the DP (Depository Participant).
  • Details of shares to be converted into demat form.
  • Net worth Certificate issued by a Chartered Accountant.
  • Certified true copies of the MoA and AoA along with the Certificate of Incorporation.
  • Certified true copy of audited annual report for the last financial year
  • GST Certificate
  • If the company has issued equity shares after the latest balance sheet in that case, such company shall provide a certified true copy of PAS-3.
  • If there is any variation in the face value of shares or reduction in the capital after the last balance sheet date, in that case, the company shall provide a certified true copy of Form SH-7.
  • Undertaking by the Company in the prescribed format.
  • Any other additional document as may be required by the DP

For Shareholders

  • Know Your Customer (“KYC”) details
  • Original Share Certificates
  • Other documents as per the specific requirement of the selected DP.

Please feel free to reach out to us in case of any questions or concerns.

Follow us
Latest posts by Nikita Bhatia (see all)