Module: | SEBI LODR & Corporate Governance Frameworks
Q3: Consider the following statements regarding the dematerialization of physical securities under the Companies Act for 2025:
1. Private companies, excluding small companies, are required to issue securities only in dematerialized form and facilitate dematerialization of all existing securities.
2. A shareholder holding physical shares in a covered private company can transfer those shares without converting them to dematerialized form first.
3. The rules mandate that the promoters, directors, and key managerial personnel must hold their entire stake in dematerialized form before making any offer for issue of any securities.
Which of the above statements is/are correct?
2. A shareholder holding physical shares in a covered private company can transfer those shares without converting them to dematerialized form first.
3. The rules mandate that the promoters, directors, and key managerial personnel must hold their entire stake in dematerialized form before making any offer for issue of any securities.
Which of the above statements is/are correct?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 1 and 3 are correct.Structural Breakdown: Statement 1 is correct; recent MCA notifications mandate private companies (non-small) to dematerialize their securities.
Statement 2 is incorrect; physical shares must be converted to demat form before any transfer can take place.
Statement 3 is correct; promoters and KMPs must ensure their holdings are completely dematerialized prior to any new corporate action.
Historical/Related Context: While listed companies and unlisted public companies were covered in earlier phases, the MCA extended these mandatory provisions to private companies recently to increase transparency.
Causal Reasoning: The transition to electronic holdings eradicates risks associated with physical certificates, such as loss, theft, and forgery, while enhancing regulatory oversight on beneficial ownership.