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Key takeaways
- Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014 makes dematerialisation mandatory for all private companies except small companies. The small company threshold, as revised on December 1, 2025, is paid-up capital not exceeding ₹10 crore and turnover not exceeding ₹100 crore.
- Converting share certificates to demat form is a two-phase process: the company must complete its setup steps before any shareholder can submit a conversion request.
- The company-side setup involves reviewing and, where necessary, amending the Articles of Association (AoA), appointing a SEBI-registered Registrar and Transfer Agent (RTA), executing a tripartite agreement with a depository (NSDL or CDSL), and obtaining an ISIN for each class of securities.
- Before any new securities can be issued, all promoters, directors, and Key Managerial Personnel (KMP) must hold their existing shares in demat form.
- The shareholder-side conversion requires opening a demat account, obtaining and filling a Dematerialisation Request Form (DRF) from their Depository Participant (DP), defacing the physical certificates, and submitting both to the DP.
- Physical certificates must be defaced by writing "SURRENDERED FOR DEMATERIALISATION". Shares subject to lock-in must be submitted on a separate DRF from free shares and cannot be combined in a single form.
- Per NSDL's published process, the conversion typically completes within 30 days of the DP receiving the DRF and physical certificates.
- Once converted, the original physical certificates are cancelled and no longer valid. Equivalent shares are credited electronically to the shareholder's demat account.
What converting physical shares to demat involves
Dematerialisation is the process of converting physical share certificates (paper documents that prove share ownership) into electronic holdings stored in a demat account managed by a SEBI-registered depository. In India, the two depositories authorised to hold dematerialised securities are the National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL).
For private companies, the conversion runs on two sequential tracks. The company must first complete its own setup before any shareholder can begin converting their certificates. Attempting to start the shareholder-side process before the company's setup is complete will fail, because the depository has no record of the company's securities until an ISIN is registered.
Under Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, this process is mandatory for all private companies that are not classified as small companies. A small company is defined as one with paid-up capital not exceeding ₹10 crore and turnover not exceeding ₹100 crore. Companies that fall below both thresholds are exempt, though they may dematerialise voluntarily.
The June 30, 2025 compliance deadline for companies to facilitate dematerialisation under Rule 9B has passed. Companies that have not yet completed the process remain in non-compliance. For the current penalty position and what companies should do now, see Dematerialisation of shares by private companies: MCA's Rule 9B.
Company-side setup before shareholders can convert physical shares into demat
Amend the Articles of Association (if applicable)
A company's Articles of Association (AoA) is its internal governance document. If the AoA contains provisions that restrict or are inconsistent with holding securities in electronic form, it must be amended before dematerialisation can proceed. Where the AoA is silent on the form of holding or already permits electronic securities, no amendment is required. The RTA will review the AoA as part of the setup process and flag any provisions that need to be addressed.
This amendment requires shareholder approval through a special resolution, where votes cast in favour must constitute at least three-fourths of the total votes cast by members present and voting, as required under Section 114(2) of the Companies Act, 2013. The resolution must then be filed with the Registrar of Companies. The RTA and depository will ask for confirmation of this amendment before any further steps can proceed.
Appoint a SEBI-registered RTA and execute the tripartite agreement
A Registrar and Transfer Agent (RTA) is a SEBI-registered intermediary that maintains the company's shareholder records and serves as the link between the company and the depository. The RTA verifies DRFs submitted by shareholders, coordinates with NSDL or CDSL, and manages future corporate actions like bonus issues and dividends on dematerialised securities.
The company appoints an RTA by passing a board resolution and issuing a formal appointment letter to the RTA. No extensive documentation is required at this stage beyond the board resolution and appointment letter.
The heavier documentation requirement comes at the ISIN application stage, which follows RTA appointment. The ISIN application is submitted through the appointed RTA to either NSDL or CDSL, and the documents typically required include the certificate of incorporation, Memorandum of Association, Articles of Association, PAN and TAN details, GST certificate, financial statements, a net worth certificate, and a shareholding list.
Obtain an ISIN for each class of securities
An International Securities Identification Number (ISIN) is a 12-character code that uniquely identifies a company's securities within the depository system. Without an ISIN, the depository has no record against which to credit shares when shareholders submit their DRFs. A separate ISIN is required for each distinct class of securities. A company with equity shares and compulsorily convertible preference shares (CCPS) needs two ISINs, one for each class.
The ISIN application is submitted through the appointed RTA to either NSDL or CDSL. Documents required at this stage typically include the certificate of incorporation, Memorandum of Association, Articles of Association, PAN and TAN details, GST certificate, financial statements, a net worth certificate, and a shareholding list.
Common causes of delay include inconsistencies between these documents, mismatched figures across annexures, and missing or expired digital signatures. For a detailed account of what causes these delays and how to avoid them, see Why ISIN applications get delayed.
Ensure promoters, directors, and KMPs hold their shares in demat form first
Under Rule 9B(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the company cannot make any offer to issue securities (whether a rights issue, bonus shares, or a private placement) until all promoters, directors, and KMPs already hold their existing shares in dematerialised form. This is a precondition to new issuances, not just a compliance deadline.
The practical consequence is that founders and board members cannot wait for a fundraise to trigger their own conversions. They must complete them before the company issues any further shares.
How shareholders convert their physical certificates to demat
Once the company has completed its setup: RTA appointed, and ISIN obtained, individual shareholders can begin converting their physical certificates. The formal mechanism is the Dematerialisation Request Form (DRF), a document submitted to the depository system that instructs it to credit the shareholder's demat account with electronic shares in exchange for the physical certificates being surrendered.
Open a demat account
A demat account is the electronic account in which dematerialised shares are held, similar to a bank account for money. Shareholders who do not already have one must open a demat account with a Depository Participant (DP), which is a SEBI-registered intermediary such as a bank or brokerage firm that provides access to either NSDL or CDSL.
Opening a demat account requires KYC (Know Your Customer) documents, a PAN card, and a signed agreement with the DP covering the terms and fee schedule. The account is held with whichever depository the chosen DP is registered with. For jointly held shares, the demat account must be opened in the same order of names as the physical certificate. Private company shareholders are not required to open an account with any specific DP and may use any SEBI-registered DP.
Obtain and fill the Dematerialisation Request Form (DRF)
The DRF is obtained from the shareholder's DP, either as a physical form or, where the DP supports it, online. It must be filled accurately because errors are a primary cause of rejection. The key fields are:
Demat account number (DP ID and client ID): The 16-digit identifier for the demat account where shares will be credited after conversion.
ISIN: The code that identifies the specific class of shares being converted. Shareholders will need to obtain this from the company, as it is specific to the company's depository registration.
Folio number: The unique identifier printed on the physical share certificate, which links the certificate to the company's shareholder register.
Number and class of shares: The exact quantity and class of shares covered by this DRF.
Lock-in details: If the shares are subject to a lock-in period (which typically applies to promoter shares and shares issued under certain ESOP arrangements), the DRF may require the lock-in reason and release date as printed on the share certificate. Importantly, shares subject to a lock-in and free shares cannot be combined in a single DRF, each must be submitted separately. Shareholders should confirm with their DP whether this field applies to their specific certificates.
Signatures: All holders named on the share certificate must sign the DRF. There are two signature fields: one matching the signature on record with the DP, and one matching the signature on record with the company or its RTA. Both must match their respective records exactly, as a mismatch is a common rejection trigger.
If the certificate is jointly held, every named holder must sign.
Deface the physical certificates
After submitting the physical certificates to the DP, it writes "SURRENDERED FOR DEMATERIALISATION" across the face of each certificate. This requirement is designed to prevent a certificate from being reused after the conversion request is initiated.
Submit the DRF and certificates to the DP
The completed DRF and the physical certificates are submitted together to the DP. The DP checks that the DRF is correctly filled and the certificates are proper, then generates a Dematerialisation Request Number (DRN) as a reference for tracking the conversion. The DP forwards the DRF and certificates to the company's RTA.
For private company shareholders, this submission must be physical. The original certificates need to be couriered or hand-delivered to the DP. Where a DP supports online initiation of the DRF, the original certificates must still be physically submitted.
RTA verification and electronic credit
Once the RTA receives the request, they request a confirmation letter from the company to process the request. This document contains ISIN, name of the shareholder, class and number of shares, DP ID, Client ID, DRN and a confirmation of acceptance of the demat. Once the company shares a signed copy of the confirmation letter, the Demar request is approved and shares credited to the demat account of the shareholder.
Per NSDL's published process, a shareholder can expect the conversion to complete within approximately 30 days of submitting the DRF and certificates to the DP.
Common reasons DRFs are rejected
Most rejections are preventable. These are the most frequent causes.
Name mismatch. The name on the physical share certificate must match the name on the demat account. For minor differences (initials placed differently, or a surname written before the first name), NSDL permits processing if the shareholder's signature on the DRF matches the specimen signature available with the company or its RTA. For more significant mismatches, the shareholder must approach the RTA for a corrected certificate before submitting the DRF. For jointly held shares, the names on the demat account must appear in the same order as on the certificate.
Face value discrepancy. If the company has carried out a share split or consolidation since the certificate was issued, the face value on the certificate may no longer match the company's current registered face value. The RTA will reject a DRF where the certificate's face value is inconsistent with the current depository records. Shareholders in this situation should contact the company to obtain a replacement certificate before initiating conversion.
Signature mismatch. The DRF has two signature fields, one compared against the specimen held by the DP, and one compared against the specimen held by the company's RTA. A signature that has changed since either record was established, or that is inconsistent between the two fields, will cause rejection. Both must match their respective specimen records independently.
Locked-in and free shares combined on one DRF. Shares subject to a lock-in and free shares must be submitted on separate DRFs. Combining them in a single form is non-compliant and will result in rejection.
What changes after share conversion to demat is complete
Once the RTA confirms dematerialisation and the depository credits the shareholder's account, the physical share certificate is cancelled and ceases to be a valid document. The shareholder's demat account statement, issued periodically by the depository through the DP, becomes the official record of shareholding.
Under Section 88(3) of the Companies Act, 2013, the register and index of beneficial owners maintained by the depository under Section 11 of the Depositories Act, 1996 is deemed to be the register of members for the purposes of the Act. The company does not separately update its own register for each individual demat conversion; the depository records serve as the statutory register of members from this point forward.
Private companies subject to Rule 9B are also required to file Form PAS-6, a half-yearly reconciliation of share capital, with the Registrar of Companies within 60 days of each half-year end. The form must be certified by a Practising Company Secretary or Chartered Accountant. For the full scope of PAS-6 obligations and the other continuing compliance requirements under Rule 9B, see Dematerialisation of shares by private companies: MCA's Rule 9B.
From this point forward, any new shares the company issues must be issued directly in dematerialised form. Physical certificates can no longer be issued for new allotments once the company has completed its Rule 9B obligations.
How EquityList manages the dematerialisation process
The heaviest coordination burden in this process falls on the company's finance or secretarial team. Collecting demat account details from every shareholder, tracking DRF submission status, and maintaining records for PAS-6 filing each require significant time, particularly where the cap table includes multiple shareholders across several security classes.
EquityList has partnered with SEBI-registered RTAs to manage this process end to end. With cap table and shareholder data on the EquityList platform, the team handles document drafting, RTA coordination, ISIN application, and shareholder communication.
The practical starting point is ensuring all cap table data (share classes, shareholder records, certificate details) is current and accurate before engaging the RTA. Errors at this stage flow through to ISIN application delays and DRF rejections later.
See EquityList's dematerialisation service for the full scope of what is managed.
FAQs on share certificates to demat conversion
How many days does it take to convert physical shares to demat?
Per NSDL's published process, a shareholder can expect conversion to complete within approximately 30 days of submitting the DRF and physical certificates to the DP. This covers DP verification, forwarding to the company's RTA, RTA verification of the certificates against the company's register, and the depository crediting the shares electronically. Rejections at any stage will extend this timeline, which is why accuracy at submission matters.
Do demat shares have share certificates?
No. Once shares are converted to demat form, the physical share certificate is cancelled and is no longer a valid document. The official record of ownership is the demat account statement, issued by the depository through the DP. The account statement replaces the physical certificate as proof of shareholding for all purposes, including transfers, dividend claims, and voting.
How to sell shares if you have a share certificate?
For private company shareholders, shares held in physical form cannot be transferred until they are converted to demat form. Once conversion is complete, transfers are executed electronically through the DP. Note that for a private company, the AoA (Articles of Association) typically imposes transfer restrictions such as board approval or right of first refusal procedures. These must be followed regardless of the electronic transfer mechanism. Converting to demat removes the operational friction of physical transfer but does not override the company's internal rules on who shares can be transferred to.
