The Government of India has issued a mandate to private companies for the compulsory dematerialisation of their physical shares by Sept 30, 2024. In simple terms, private companies (except small) will have to convert all issued physical share certificates into digital form

Prior to the Ministry of Corporate Affairs (MCAs) Rule 9B, dematerialisation of shares was optional for private companies. It was mandated only for publicly traded companies and some large private companies.
This meant most private companies in India relied on physical share certificates — a system vulnerable to loss, theft, and forgery. All private companies are now required to convert their existing physical certificate to electronic certificates by Sept 30th, 2024, and only issue shares electronically going forward.
Rule 9B discusses the issue of securities in dematerialised form by private companies and states that:
1. Every private company, other than a small company, shall
a. Issue the securities only in dematerialised form and
b. Facilitate dematerialisation of all its securities
per provisions of the Depositories Act, 1996 (22 of 1996) and regulations made thereunder. A small private company is referred to as a company with a paid-up capital of less than ₹4 crore and a turnover of less than ₹40 crore.
2. If a private company isn’t considered small based on its financial records at the end of a financial year ending after March 31, 2023, it must follow these rules within 18 months after the end of that financial year.
3. Any private company as specified above, when making offers for issuing securities, buying back securities, issuing bonus shares, or offering rights after it needs to follow this rule, must ensure that all securities held by its promoters, directors, and key managerial personnel have been dematerialised as per the rules of the Depositories Act, 1996 (22 of 1996), and related regulations before making such offers.
4. Every holder of securities of the private company referred to in sub-rule (2),-
a. Planning to transfer these securities should dematerialise them before the transfer.
b. Similarly, anyone subscribing to securities of the private company through private placement, bonus shares, or rights offered after this rule applies to the company must make sure their securities are dematerialised before subscribing.
5. The rules from (4) to (10) of rule 9A will apply accordingly to the dematerialisation of securities under this rule.
6. The provisions of this rule shall not apply in the case of a government company.
Dematerialising the shares of private companies is expected to streamline share management and enhance security for both, companies and investors. It could also potentially improve liquidity within the private securities market.