{"id":167,"date":"2026-07-21T07:50:54","date_gmt":"2026-07-21T07:50:54","guid":{"rendered":"https:\/\/www.enmglobal.com\/blog\/?p=167"},"modified":"2026-07-21T07:50:56","modified_gmt":"2026-07-21T07:50:56","slug":"dematerialisation-of-shares-why-foreign-owned-private-companies-should-act-before-the-next-transaction","status":"publish","type":"post","link":"https:\/\/www.enmglobal.com\/blog\/dematerialisation-of-shares-why-foreign-owned-private-companies-should-act-before-the-next-transaction\/","title":{"rendered":"Dematerialisation of Shares: Why Foreign-Owned Private Companies Should Act Before the Next Transaction"},"content":{"rendered":"\n

Many foreign companies operating in India have subsidiaries that have historically held \u00a0physical share certificates. It is quite common for the parent company to hold 100% of the share beneficially \u2013 directly and through a nominee. \u00a0\u00a0The regulations about shares require most companies to hold shares in dematerialized (digital) form. Why does the requirement commonly apply to foreign subsidiaries?<\/strong><\/strong><\/p>\n\n\n\n

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules states that each private company, except a small company, shall allot securities in dematerialised form and facilitate the dematerialisation of its existing securities.<\/p>\n\n\n\n

The Indian subsidiary will not be considered a small company even if its capital and turnover are below the prescribed limits. The Companies Act defines a holding company or a subsidiary as not being a small company. The process of dematerialisation applies to the Indian subsidiary of a foreign parent.<\/p>\n\n\n\n

Which transactions can be affected?<\/strong><\/strong><\/h2>\n\n\n\n
If a company has not dematerialized shares, it cannot have any transactions in shares. For example,<\/p>\n\n\n\n
\n
The foreign parent company wishes to subscribe to the rights issue to fund the Indian subsidiary.<\/li>\n\n\n\n
The company intends to issue\u00a0bonus shares.<\/li>\n\n\n\n
The shares are to be transferred from the parent to another foreign group company through internal restructuring.<\/li>\n\n\n\n
The foreign shareholder intends to sell the Indian subsidiary to a third-party buyer.<\/li>\n\n\n\n
Nominee shareholders are intended to be substituted.<\/li>\n\n\n\n
Mergers or demergers will lead to cancellation, transfer, or issue of shares.<\/li>\n\n\n\n
The company proposes a private placement, buyback, or other capital reorganization.<\/li>\n<\/ul>\n\n\n\n
A physical share transfer form and board resolution are thus not sufficient for the transfer after the relevant compliance date.<\/p>\n\n\n\n
What does the process involve?<\/strong><\/strong><\/h2>\n\n\n\n
The company is required to appoint a registrar and a transfer agent, enter into arrangements with a depository, and obtain an International Securities Identification Number for its stocks.<\/p>\n\n\n\n
The overseas parent, along with other shareholders, needs to have demat accounts opened with depository participants and fulfill all necessary documentation requirements. Thus, the physical certificates are then deposited and changed into electronic form.<\/p>\n\n\n\n
It may take some time, especially when approval of documents from the parent\/shareholder company located abroad is necessary. It should be addressed as a regular compliance issue rather than only after the deal schedule has been established.<\/p>\n\n\n\n
Dematerialisation does not affect the company\u2019s ownership. It only affects the mode of holding the shares. Doing dematerialisation at an earlier stage ensures that the smaller issue does not prevent the bigger issue from getting through.<\/p>\n<\/body>","protected":false},"excerpt":{"rendered":"
Many foreign companies operating in India have subsidiaries that have historically held \u00a0physical share certificates. It is quite common for the parent company to hold 100% of the share beneficially \u2013 directly and through...<\/p>\n","protected":false},"author":1,"featured_media":168,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[74],"tags":[18,76,75],"class_list":["post-167","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-foreign-owned-private-companies","tag-enm-global","tag-foreign-companies","tag-foreign-owned-private-companies"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.enmglobal.com\/blog\/wp-content\/uploads\/2026\/07\/Dematerialisation-of-Shares-Why-Foreign-Owned-Private-Companies-Should-Act-Before-the-Next-Transaction-1.png?fit=720%2C340&ssl=1","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/posts\/167","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/comments?post=167"}],"version-history":[{"count":1,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/posts\/167\/revisions"}],"predecessor-version":[{"id":169,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/posts\/167\/revisions\/169"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/media\/168"}],"wp:attachment":[{"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/media?parent=167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/categories?post=167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.enmglobal.com\/blog\/wp-json\/wp\/v2\/tags?post=167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}