Demat of unlisted company shares will enhance transparency: experts

The Securities and Exchange Board of India (Sebi) and the Ministry of corporate affairs have been working to weed out several shell companies that emerged following the government’s demonetisation move. One of the initiatives that is being considered is the dematerialisation of shares of public companies that aren’t listed. 

Experts suggest this will essentially bring in more transparency in the functioning of these companies, as these companies may now have to issue electronic stocks in much the same format as listed companies do. 

Sumit Agrawal, Suvan Law Advisors, is of the opinion that the move will bring down the number of frauds relating to dividend payouts and equity shares. He says, “There have been number of cases where the holder is one (person) and the dividend is taken by another person. This will stop, as some identification will be possible.” He adds that this will make it easier for the government to keep an eye on suspect companies and initiate an investigation, if need be. 

Experts believe that with share demat being made mandatory for these companies, one will be able to identify who the holder of the share is, and what the exact value of the share is.

One expert says, “It is common practice in family-run companies to either not issue share certificates, or to have all share certificates held in the custody of a single person. There is gross non-compliance. Compulsory demat will ensure due compliance of law. It would eliminate allotment of shares to dummy/ghost shareholders, as each shareholder has to comply with KYC norms while opening the demat account.” 

The state will also benefit by way of tax collections as it will not be possible to evade payment of capital gains tax through benami holdings.


As on July 31, 2017, there were 67,884 public companies of which 66,601 were privately owned, while the rest are government-owned unlisted public companies. There were more than 63,500 public companies in 2015-16, of which 56,000 were unlisted. Out of these, 55,000 are privately owned while 1,000 were government-owned enterprises. As far as private companies are concerned, around 6,000 are registered with the Registrar of Companies (RoC). 

In an attempt to weed out shell companies, the government has already frozen bank accounts of such entities. Sebi has also initiated action against 331 shell companies and has delisted some others that have been suspected of not contributing to the mainstream economy. 

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