Demat shares for private companies: meaning, how it works in India

Demat is short for dematerialised. It means shares exist as electronic records in an account with a depository, instead of as paper certificates in a founder's cupboard. In India the two depositories are NSDL and CDSL, and investors reach them through depository participants such as banks and brokers.

Listed companies have worked this way for years. The change in recent years is that private companies, which used to keep shares on paper in a register, now have to do the same unless they are small companies.

Rule 9B was added to the Companies (Prospectus and Allotment of Securities) Rules, 2014, and was notified in October 2023. In simple terms, a private company that is not a small company must issue its securities only in demat form and must make arrangements for existing holders to convert their paper holdings to demat. Government companies are outside its scope.

Before a private company makes any offer, issue, buyback, bonus issue or rights issue of securities, the company's promoters, directors and key managerial persons must already hold all their securities in demat form. Law-firm notes also say a private company must reconcile its records with the depository and report the position to the Registrar of Companies, so the register and the electronic records match.

• Applies to: private companies that are not small companies.
• Needs: an ISIN (a unique security code) and an agreement with a depository.
• Pre-condition for new issues: promoters, directors and key managerial staff hold in demat.
• Rule source: Companies (Prospectus and Allotment of Securities) Rules, 2014, Rule 9B.

The date was first set at 30 September 2024. A February 2025 amendment moved it to 30 June 2025 for private companies that were not small companies as on 31 March 2023, according to law-firm summaries. As of November 2026 that window has closed, and no further extension beyond that date was found in the sources checked. A company that becomes non-small later, according to one law-firm summary, gets a period of 18 months from that point.

A small company, in the Companies Act definition, is a private company with paid-up capital and turnover below limits set by the government. At the 2022 revision the limits were paid-up capital up to ₹4 crore and turnover up to ₹40 crore, and these can change, so check the current limits. Holding companies, subsidiaries and some charitable companies are excluded from the small-company category. Producer companies have a separate timeline, reported as 31 March 2028.

The usual steps are the same for most companies. The board approves the move, the company appoints a registrar and transfer agent, it applies to NSDL or CDSL for an ISIN, and it signs agreements with the depository. Each shareholder then opens a demat account with a depository participant and submits a request to convert the paper holding.

The cost and effort are small for a startup with ten shareholders and large for a company with many angels and employee holders. Every holder needs a demat account and a PAN. Holders outside India, such as foreign funds, need accounts that suit their status.

• Board resolution and appointment of a registrar.
• ISIN allotted by the depository.
• Each holder opens a demat account and submits a conversion request.
• The company updates its register and files the required reports.

For employees, shares allotted on exercise of options go into the employee's demat account, so an employee needs one. A founder or HR team can no longer hand over a paper certificate. Companies often add this step to the exercise process.

For angels and early investors, transfers happen by instruction through the depository, not by signing a transfer form, which can speed up secondary sales. Law-firm notes also point out a limit: a transfer of a demat holding is still subject to the company's articles, so a company's right of first refusal still matters. Records of who owns what become cleaner, which helps in due diligence before a funding round or a public offering.

A company that has not converted may be restricted from making new issues, buybacks or rights issues, since Rule 9B ties these to demat status. It also exposes the company and its officers to penalties under the Companies Act for non-compliance. Investors may ask for proof of demat in a diligence list.

Not every private company has the same position, so a company that is unsure whether it is small should check its latest accounts and the current definition. This page is general information and not legal advice, so check with a company secretary or lawyer.

A listed company's shares trade on an exchange, and the demat account is the route for buying and selling. A private company's demat shares are not traded on an exchange. They move through off-market transfers between holders, each needing the buyer's and seller's depository participants to process the instruction.

Private shares also remain subject to the company's articles of association and any shareholders' agreement, which may restrict who can buy and when. The depository records ownership, but it does not make the shares liquid.

A founder can start by listing every holder with a PAN and contact details, including past employees who exercised options and angels who invested years ago. Tracing a holder who has moved abroad or cannot be found is often the slowest part. Many companies use a company secretary or a registrar to run the process and keep copies of every conversion request.

Cost is another practical point. Fees for an ISIN, the depository agreement and annual charges are modest for a company, and holders pay account charges to their depository participant. Fees differ across providers, so a company should ask for quotes.

• List all shareholders with PAN, address and email.
• Check the cap table against the share register.
• Pick a registrar and apply for an ISIN.
• Ask each holder to open a demat account.
• Keep records ready for diligence in the next round.

A headline about 'mandatory demat' for startups usually refers to Rule 9B and its June 2025 deadline. A story about 'ISIN' for an unlisted company is about the same process. Do not confuse this with a listing: a company whose shares are in demat is not listed or tradable on an exchange.