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.
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.
Generally, shareholders are referred as members.
There are more than 70,000 public companies, according to official data.
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.
Shares of Central Depository Services (CDSL), which offers demat services, gained as much as 7.5 per cent on Tuesday. The shares, however, failed to sustain gains and ended flat at Rs 259 amid weakness in the market.