What is Dematerialization of Shares? A Complete Guide
A company’s shares are dematerialized when the shares are converted into electronic form. This is done to make the shares more manageable, easier to track, and reduce the number of shares on board. In addition, dematerialization makes it easier to trade shares and raises liquidity. Finally, it allows shareholders to sell shares without having to share information such as their holdings and contact details. So what is the dematerialization of shares and why is it important? Read on to find out!
What is Dematerialization?
Dematerialization of shares is a process of transferring physical shares to electronic form. This dematerialization makes it easier to track share ownership and financial performance. It also removes physical shares and reduces trade and settlement risks.
Why does Company want to Demat its Shares?
The main reasons companies choose to dematerialize their shares are to make them easier to trade on the stock market and to increase liquidity in the market. This is done by allowing shareholders to sell and buy shares more freely, which in turn, increases investor confidence.
There are various reasons companies dematerialize shares, including:
- To reduce costs and simplify accounting
- To reduce regulatory compliance burdens
- To reduce share trading and settlement risks
- To reduce share price volatility
So, in a nutshell, demating shares is a way for companies to modernize and improve their financial position.
How is Dematerialization Done?
Dematerialization of shares is a process that allows for easier exchange and trading of shares between shareholders. It also reduces the overall number of paper documents in an organization, which can save on storage space and administrative costs. The dematerialization of shares is usually carried out by the exchange or registrar of shares. The dematerialization of shares is also known as share dematerialization or share dematerialization process.
Effects of Dematerialization of Shares
Shares have always been physical objects – they’re physical certificates that represent an ownership stake in a company or asset. However, with the dematerialization of shares, this is beginning to change. This process will make it easier for investors to trade and understand stocks, without having to deal with physical paper certificates.. Overall, dematerialization is likely to improve transparency and efficiency in the stock market. So, what are the effects of the dematerialization of shares? Here’s a complete guide to help you understand what’s going on and what you can expect.
Process of Dematerialization of Shares
When a company dematerializes its shares, it means that the physical shares are no longer in existence. This process is used to make it easier for investors to trade the stock and keep track of ownership. The shareholders receive new shares in an electronic form in exchange for their old ones – this is known as dematerialization.
Procedure: For the Company
- Hold a Board meeting to consider and approve the proposal for obtaining DEMAT connectivity for securities with the depositories;
- Appoint a Registrar and Transfer Agent (RTA);
- After the appointment of RTA, the company shall file an application along with relevant documents with the depository for obtaining DEMAT connectivity;
- The company, depository, and RTA shall enter into a Tripartite agreement in respect of securities that are to be declared as eligible to be held in dematerialized form;
- After verification of the application and other documents, the depository will provide the DEMAT connectivity to the company and allocate ISIN to the securities of the company.
Procedure: For the Shareholders
- Submit necessary documents after authorization from the Board
- Open Demat account
Documents required for preparing your Application for Obtaining ISIN / DEMAT Registration through NSDL/ CDSL
- PAN Card Copy, COI, MOA, AOA
- Latest balance sheet & audit report of the Company
- TAN & GST Registration of the Company.
- PAN and Aadhaar Card Number of all Directors & Authorised Signatory.
- Email ID, Contact Number, and Name of Authorised Signatory.
- List of Shareholding as on Current Date
- Net worth Certificate & Board Resolution
In today’s world, it is essential for companies to dematerialize their shares in order to reduce their physical stock holdings and simplify their financial reporting. By understanding the different effects of dematerialization, you can make an informed decision about whether or not this is a good decision for your company.
SBS Global is an ISO 9001:2015 & ISO 27001:2013 certified company serving since 2007. SBS Global offers a comprehensive range of Outsourced Financial Accounting Services, CFO Services, Compliance (i.e., Company Secretary services) & HR Services catering to the needs of Small & Medium Organizations across industry sectors to meet their changing needs & expectations. Our team includes employees having industry & domain expertise who have insights drawn from years of professional experience.
For more details on dematerialization of shares please visit or contact us