The great majority of corporations in India are privately owned. A sizable portion of these would fit into the “small company” category, which, like government companies, is free from the demat requirements.
Ease of doing business and digitalization would undoubtedly rank among the top responses when asked what the main causes behind the current state of the Indian economy are. In terms of the World Bank’s “Ease of Doing Business” score, India Inc. has significantly improved, and even after the most recent report was released, the company has kept up its steady progress in this regard.
The most recent development in this regard may be the tendency toward dematerialization of its private enterprises’ securities. According to the existing regulations, private enterprises have until September 30, 2024, to convert to dematerialized securities. Listed companies and unlisted public companies were previously subject to dematerialization.
The great majority of corporations in India are privately owned. A sizable portion of these would fit into the “small company” category, which, like government companies, is free from the demat requirements. Companies that fall outside of the exemption’s purview, i.e., those with a capital or revenue of over forty crores, are required to dematerialize any securities they issue prior to the deadline. The new regulations aim to make businesses that affect the economy—whether through capital raising, business dealings with other firms, or bank loans and other financing—more accountable.
financial institutions should be transparent and accountable in all aspects of their business. Dematerialization would safeguard the interests of all parties involved in a corporation and lessen the number of security-related scams that occur in the economy.
Although the move is in the correct direction, more thought should have gone into how the regulations applied given the structure of the Indian corporate sector. Wholly owned businesses are one group of businesses that must shoulder the cost of the demat transfer.
subsidiaries. A noteworthy subset of businesses will be closely held enterprises, or those in which the securityholders are members of the same immediate family. In these situations, there would be very little to no changes to the issued securities and their holders. These groups may see the digitalization to be a burdensome compliance that stops too soon. Section 8 companies—businesses established for charitable purposes—will likewise be covered by this section. It is also a way for more recent organizations to get involved in these private enterprises’ business dealings, such as depositories and SEBI.
The demat action may discourage entrepreneurs with strong commercial potential from choosing to operate their businesses using business models other than corporations, which could lead to other problems such as lower disclosure requirements. Another factor is that investors in private firms have less opportunity to participate in programs that educate them about the process’s procedures, dangers, and advantages than they have in public organizations. It is the securityholders’ responsibility to get the securities they own dematerialized; this might be a laborious process.
Dematerialization of securities is a procedural process that requires money, time, and paperwork. The Ministry of Corporate Affairs (MCA) should step in right away to see whether any exemptions or relaxations can be granted to the aforementioned kinds of enterprises in order to uphold the ease in business spirit, as the deadline for finishing the process is quickly approaching. Making the demat process more affordable for businesses is another possible move by SEBI, given that most of these private companies pay more for audits and other forms of compliance than they do for admittance and other procedure expenses.
The digitalization of major private enterprises and charitable organizations may follow a streamlined strategy, and fully owned companies may be exempt from some requirements. In order to ensure that processes are completed within the allotted period, the Depositories must act quickly to adapt their regulations in accordance with any positive steps taken by the Regulators in this area.
