Dematerialisation of Shares explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
For most of this Act's life, demat was a listed-company problem. Rule 9A pulled in unlisted public companies in 2018. Rule 9B, inserted in 2023, pulled in private companies.
It's the single biggest new compliance obligation for a growing private company — and it arrives without warning. You don't decide to trigger it. Your audited numbers trigger it, for a year that has already ended.
The moment most founders find out is at term-sheet stage, when they discover they legally cannot issue the shares.
Applies to every private company that isn't a small company as per its audited financials for a year ending on or after 31 March 2023. Eighteen months from that year end to comply. Until promoter, director and KMP holdings are in demat, you can't issue, buy back, do a bonus or a rights offer. And PAS-6 becomes a twice-yearly filing forever.
Who's caught?
Every private company other than a small company and a Government company which, 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.
| Covered | Any private company that isn't a small company on its audited financials for a year ending on/after 31 Mar 2023 |
| Excluded | Small companies, Government companies |
| Trigger | The last day of the financial year in which you weren't a small company |
| Window | Eighteen months from the close of that financial year |
A small company is a non-public company with paid-up capital not exceeding ₹4 crore and previous-year turnover not exceeding ₹40 crore. And critically — a holding company, a subsidiary, a Section 8 company or a company governed by a special Act is never a small company, whatever its size.
That last exclusion catches an enormous number of companies. A ₹5 lakh wholly-owned subsidiary with zero turnover is not a small company. It's a subsidiary. So it's inside Rule 9B. Small company thresholds →
Worked example. Your audited financials for the year ended 31 March 2027 show paid-up capital of ₹4.5 crore. You weren't a small company at 31 March 2027. You must comply with Rule 9B by 30 September 2028.
What does "comply" actually mean?
Two limbs under Rule 9B(2): issue securities only in dematerialised form, and facilitate dematerialisation of all existing securities.
Note "facilitate". You must obtain an ISIN and connect to the depositories so that any holder who wants to dematerialise can. You can't compel a shareholder to open a demat account — but you must make it possible.
Then the bar that actually bites — Rule 9B(3). Before making any offer for issue of securities, buy-back, bonus issue or rights offer, you must ensure the entire holding of your promoters, directors and KMP has been dematerialised.
Read that again if you're mid-fundraise. Until promoter, director and KMP demat is complete, you cannot raise money, cannot issue bonus shares, cannot do a rights issue, and cannot buy back. Discovering this at term-sheet stage costs weeks you don't have.
And Rule 9B(4) binds holders too. Any holder who intends to transfer securities on or after the compliance date, or who subscribes to any securities — private placement, bonus or rights — must have their entire holding in demat first.
How do you actually do it?
1. Appoint a SEBI-registered RTA. They interface with the depositories and process demat requests. 1–2 weeks.
2. Get an ISIN from NSDL and CDSL. The International Securities Identification Number is the unique code for your securities, applied for through the RTA with:
- Certificate of Incorporation, MOA and AoA;
- audited financial statements;
- Board resolution approving demat and the RTA appointment;
- net worth certificate;
- confirmation of no pending litigation on the share capital;
- the company's PAN;
- an undertaking on reconciliation of share capital.
Get one from both depositories — a shareholder's DP may be with either.
3. Reconcile your share capital. This is where the time actually goes. Before demat, the register of members must reconcile exactly with issued capital: distinctive numbers continuous and unduplicated, folio numbers clean, certificate numbers accounted for, and every allotment backed by a PAS-3 filing. For a company with a long allotment history this is 2–8 weeks of work. Share certificates and distinctive numbers →
4. Dematerialise promoter, director and KMP holdings first. Because Rule 9B(3) gates every future corporate action on it. Each of them opens a demat account with a DP, submits a Dematerialisation Request Form with the physical certificates, and the RTA confirms against the register.
5. Facilitate demat for everyone else. Send a communication to all members with the process and the RTA's contact details.
6. Issue all future securities in demat only.
7. Start filing PAS-6. Rule 9B(5) applies Rule 9A(3) to 9A(10) to you, which brings in the PAS-6 Reconciliation of Share Capital Audit Report — filed with the Registrar within sixty days of each half year, certified by a practising CS or CA.
| Half year | PAS-6 due |
|---|---|
| 1 April – 30 September | 29 November |
| 1 October – 31 March | 30 May |
PAS-6 reconciles issued capital against holdings in NSDL, CDSL and physical form, reports any difference, and covers changes in capital during the half-year and the promoters' demat holding.
8. Keep paying. Rule 9A(5) requires timely payment of depository and RTA fees and maintenance of the prescribed security deposit at all times.
What happens if you don't comply?
Rule 9A(6): the company cannot make any offer for issue of securities, buy-back, bonus or rights offer until the depository and RTA payments are made and the requirement is satisfied.
Rule 9A(7): a holder who hasn't dematerialised cannot transfer or subscribe to further securities.
Penalty. The Rules prescribe none specifically, so adjudication runs under Section 450 — ₹10,000 on the company and every officer in default, plus ₹1,000 a day, capped at ₹2,00,000 and ₹50,000. And Section 446B relief isn't available, because a company inside Rule 9B is by definition not a small company.
But the penalty isn't the point. The point is that your equity is frozen. No issue, no transfer, no round. Full penalty chart →
Time and cost
| Step | Typical time |
|---|---|
| RTA appointment | 1–2 weeks |
| Share capital reconciliation | 2–8 weeks, depending on history |
| ISIN from NSDL and CDSL | 3–4 weeks after complete documents |
| Promoter / director / KMP demat | 2–4 weeks |
| Shareholder communication and demat | Ongoing |
Recurring costs: annual RTA fees, annual custody and issuer fees to each depository, and PAS-6 certification twice a year. Budget it as a permanent line item — the obligation doesn't lapse if you later fall back under the small-company thresholds, and practically, once demat, always demat.
The lesson on timing: the eighteen months sounds generous, and it isn't. Reconciliation and ISIN alone can eat three months, and they're sequential. Start when the audit signs, not when the deadline approaches.
Key takeaways
- A subsidiary is never a small company — so a tiny WOS is inside Rule 9B.
- The trigger is your audited numbers, for a year that's already closed.
- Eighteen months from that year end.
- Promoter, director and KMP demat gates every issue, buy-back, bonus and rights offer.
- Get ISINs from both NSDL and CDSL.
- Share capital reconciliation is the long pole. Start early.
- PAS-6 twice a year, forever, by 29 November and 30 May.
Read next
- Compliance Checklist for a Private Limited Company
- Small Company: Definition, Thresholds and Benefits
- Share Certificates under Section 46
- Private Placement under Section 42 and PAS-3
- Rights Issue under Section 62(1)(a)
Disclaimer: Rule 9B and its timelines have been amended since introduction, and the MCA has extended compliance dates by notification before. Positions stated as on 4 September 2026 — verify the current text of the Rules and take professional advice.