Unlisted public companies have to compulsorily issue new shares in demat form beginning October 2, the government said Tuesday.
Besides, transfer of shares has to be done only in the demat or electronic form.
This step has been taken for "further enhancing transparency, investor protection and governance in the corporate sector," the Corporate Affairs Ministry said in a release.
The decision also comes at a time when the ministry is clamping down on shell companies that are suspected of being conduits for illicit fund flows.
From October 2, issue of further shares and transfer of all shares by unlisted public companies shall be in dematerialised form only, the ministry said.
Under the Companies Act, 2013, there are public as well as private companies. Generally, those having more than 200 members are classified as public companies and they have to follow stricter corporate governance norms.
According to the ministry, elimination of risks associated with physical certificates such as loss, theft, mutilation and fraud, would be a key benefit from the decision on having shares in demat form.
Further, the move would help improve the corporate governance system by increasing transparency and preventing mal-practices such as benami shareholding and back-dated issuance of shares, it said.
"Unlisted public companies are expected to facilitate the dematerialisation of their securities in coordination with depositories and share transfer agents," the release said.
Grievances would be handled by the Investor Education and Protection Fund (IEPF) Authority.
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