1. FOR PRIVATE LIMITED COMPANY
a. In order to convert physical share certificates into virtual shares, SEBI has made dematerialization mandatory, which is a process of converting shares into electronic form. This requires four parties: the depository, the issuer, the beneficial owner, as well as depository.
Private companies are exempted from such conversion.
b. Promoters must hold their shares in Demat.
c. Company may give facility for conversion of shares into Demat, it is mandatory for publicly listed companies.
d. how a private company shall give the option to investors for conversion of shares into demat? What are the benefits of conversion into Demat?
Private companies have to register with NSDL/CDSL. Depositories have their own criteria for registration, which the issuer must follow.
Investor has to open an account on NSDL/CDSL where the company has registered.
If the company has an account on NSDL and the investor has an account on CSDL then the transfer of shares cannot transfer, so the investor has to open the account NSDL.
Open a Demat Account
Step 1: Visit the website of your favourite DP to easily and quickly open a Demat and trading account.
Step 2: On their website, select the 'Open a Demat and Trading Account' link.
Step 3: Fill in the application form.
Step 4: Upload scan copies of each document required for Know Your Customer (KYC).
For investors: Aadhar card, PAN card, Bank statement, cancel cheque, Photocopies.
For company: Board Resolution, MOA & AOA, cancel the cheque, GST certificate if registered (all the documents must attest and signed).
Step 5: Sign the agreement with the Depository Participants with the charges. This agreement includes the duties and responsibilities of both the depository participant and the account holder. As a result, it's necessary to read them completely before signing.
Step 6: Your application will be processed by the DP after you have provided the necessary documents.
Step 7: You will be given a Demat account number and a special user ID and password to access your trading account along with a trading account upon the successful approval of your application.
Raise a Request for Dematerialization of Shares
Once you open a Demat account, you will request to convert your physical share certificates into the dematerialized format. You can follow the steps mentioned below to raise a dematerialization request with your Depository Participants (DP):
Step 1: Contact preferred Depository Participants (DP) for a Dematerialization Request Form (DRF).
Step 2: Complete the DRF with all the necessary information, then sign it. Send your Depository Participants the properly filled out form and your actual share certificates. 'Surrendered for Dematerialization' must be noted on each physical share certificate.
Step 3: After obtaining the DRF and the physical share certificates that have been surrendered, your Depository Participants will handle your request.
Step 4: Further on, your Depository Participants would send the dematerialization request to the concerned company’s appointed Registrar and Share Transfer Agent (RTA).
Step 5: When the dematerialization request is approved, your physical share certificates are destroyed, and the appropriate number of shares are credited to your Demat account.
BENEFITS OF CONVERSION
The policy that SEBI announced requiring investors to convert every physical share certificate into electronic form is the main reason why investors are looking for information on how to convert physical shares to Demat online. The method SEBI is pursuing is based on solid research that demonstrates this technique has significant benefits over maintaining genuine share certificates, not on assumptions. Once an investor gets to knew how to do so, it will offer the advantages listed below:
Safety: Dematerialization decreases the possibility of shares being stolen, falsified, or misplaced, hence enhancing holding security. They are now housed in safe depositories, so theft is not an issue.
Convenience: Dematerialized shares' electronic nature has eliminated the issues associated with their storage and maintenance. You won't have to worry about lost or harmed credentials any longer.
Accessibility: Electronically and online, all sharing records are kept. As a result, you can access dematerialized shares virtually anytime and anywhere using the internet.
Cost-efficiency: The absence of time-consuming paperwork in electronic trading lowers costs significantly.
Flexibility: Increased flexibility brought about by dematerialization improves access for small investors. Now, there are no more limitations on the number of shares that can be purchased or sold.
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