Transfer of shares by listed companies has to be done only in the demat or electronic form from 5 December, said market regulator Securities and Exchange Board of India (SEBI).
Post-Tuesday, you won't be able to transfer shares of listed companies if they are held in physical form.
Here is what the decision means and why the government decided to go ahead with it:
This step has been taken for "further enhancing transparency, investor protection and governance in the corporate sector," the Corporate Affairs Ministry had 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.
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 malpractices such as benami shareholding and back-dated issuance of shares, it said.
The government had also asked unlisted public companies to compulsorily issue new shares in demat form beginning 2 October. The move would help in enhancing transparency in ownership at corporates, curb benami transactions and bolster the efforts to weed out shell companies that are allegedly used for illicit activities.
At the end of June, there were more than 11.89 lakh active companies. Out of them, 71,506 were public companies and over 11.10 lakh companies were private ones, as per data compiled by the ministry
Investors can still hold shares in physical form
SEBI had said its new guidelines do not bar investors from holding shares in physical form even after 5 December. SEBI had received several calls concerning the applicability of its directive.
"The new amendment does not prohibit the investor from holding the shares in physical form, investor has the option of holding shares in physical form even after 5 December," SEBI said in a statement in August.
The new rule is not applicable for transfer of title of shares by way of inheritance or succession and interchanging of the order of names of shareholders.
Besides, it said that any investor who is desirous of transferring shares, which are held in physical form, after 5 December can do so only after the shares are dematerialised.
(With inputs from PTI)