Section 8 Companies must have shares in Demat form by 30th September 2024

A Private or Public Company licensed under section 8 of the Indian Companies Act 2013 (or Section 25 of the Indian Companies Act 1956 as the case maybe), could be limited by shares or limited by guarantee. If limited by shares, such shares must be dematerialized by 30^th September 2024. A Section 8 Company limited by guarantee of its members is not required to do anything in this regard.

The Ministry of Corporate Affairs (MCA) had issued Notification Dated: 27^th October 2023 regarding Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. In accordance with the said rules, Non-Small Private Limited Companies are required to dematerialize their existing securities and ensure that further issue of securities and transfers are only in dematerialized form. The Rules will be effective from 30^th September 2024.

The provisions of dematerialization are not applicable to the following Companies.

1. Nidhi Company
2. Government company
3. Wholly owned subsidiary of a public company
4. Small Private Limited Company

The provisions of dematerialization are applicable to the following Companies:

1. Public limited companies
2. Non-small private limited companies
3. Section 8 Company
4. Subsidiary of a Foreign or Indian Company
5. Producer Company (non-small)
6. Dormant Company (non-small)
7. Wholly owned subsidiary of a private company
8. NBFC

Small Companies are exempt, but, Section 8 company is excluded from definition of ‘small company.’

The Companies Act 2013 created the concept of small companies to provide benefits to small enterprises that operate as private limited companies.

The Ministry of Corporate Affairs however introduced further modifications to the definition of a small company on September 15, 2022. This change was implemented through the Companies (Specification of Definitions Details) Amendment Rules, 2022. The refreshed definition of a small company is detailed in Section 2(85) of the Indian Companies Act, 2013. According to this definition, a small company is a non-public entity meeting the following criteria:

1. Paid-up Share Capital: It possesses a paid-up share capital equal to or below Rs. Four crores or such higher amount as specified, not exceeding, Rs. Ten crores.
2. Turnover: The Company maintains a turnover equal to or below Rs. Forty crores or such higher amount as specified, not exceeding Rs. One hundred crores.

However, the concept of small companies does not extend to certain types of firms, including holding or subsidiary companies, those registered under section 8, and entities governed by special acts.

Hence, even though a Section 8 company may meet the criteria of ‘small company’ with regard to having share capital equal to or below Rs. Four crores, the revised definition of a ‘small company’ has excluded Section 8 Companies.

Penalties

Non-compliance will entail penalties of Rs. 10,000 plus Rs. 1,000 for each day the violation continues, with a maximum of Rs. 200,000. Every officer of the company in default also faces the same penalties, with a maximum of Rs. 50,000.