Companies Act Section 29

Companies Act Section 29: Public Offer of Securities to be in Dematerialised Form

Section 29 of the Companies Act addresses the requirements for public offers of securities and emphasizes the importance of issuing these securities in a dematerialised form. 

This section aligns with the evolving landscape of securities transactions and promotes a more efficient and secure method of handling securities through dematerialisation. 

Below is a detailed breakdown of the provisions contained in this section.

1. Requirement for Public Offers

a. Dematerialised Form

General Requirement: 

The primary stipulation under this section is that any company making a public offer of its securities must issue these securities solely in a dematerialised form. 

This requirement is established in accordance with the provisions of the Depositories Act, 1996 (22 of 1996) and the regulations issued under that Act. 

The move towards dematerialisation is intended to streamline the process of buying, selling, and holding securities by eliminating the need for physical certificates, which can be cumbersome and prone to loss or theft.

Additional Classes of Companies: 

Furthermore, the section extends this requirement to include additional classes of companies as may be prescribed by the regulatory authorities. 

This means that certain types of companies, beyond those making public offers, will also be mandated to issue their securities in dematerialised form, thereby promoting a uniform standard across various sectors of the economy.

2. Unlisted Companies

a. Holding and Transfer

Dematerialised Requirement for Unlisted Companies: 

For unlisted companies that fall under the prescribed classes outlined by the authorities, the section mandates that their securities must be held or transferred exclusively in dematerialised form. 

This provision is designed to ensure that unlisted companies, which may have different operational dynamics compared to their listed counterparts, still adhere to modern practices in the handling of securities. 

Regulatory Compliance: 

The requirement for holding and transferring securities in dematerialised form aligns with the Depositories Act, 1996 and its associated regulations, thereby ensuring a cohesive approach to securities management across both listed and unlisted entities.

3. Other Companies

a. Option for Conversion

Choice for Non-Prescribed Companies: 

For companies that are not covered under the obligations specified in subsection (1), there exists an option to either convert their existing securities into dematerialised form or to continue issuing their securities in physical form. 

This flexibility allows companies to make decisions that best suit their operational requirements and shareholder preferences.

Options Explained:

Convert Securities: 

Companies may choose to convert their existing securities into a dematerialised format. 

This process typically involves coordinating with a depository to ensure that the transition to electronic holdings is managed effectively and complies with the necessary regulations.

Issue in Physical Form: 

Alternatively, if a company opts to issue its securities in physical form, it must do so in adherence to the relevant provisions outlined in the Companies Act. 

This includes ensuring that the physical issuance is done in a manner that is transparent and complies with regulatory requirements.

Dematerialised Issue:

Additionally, companies may also decide to issue their securities directly in a dematerialised form, following the guidelines established by the Depositories Act, 1996 and the associated regulations. 

This choice reflects the company’s commitment to modernising its operations and enhancing the convenience for its shareholders.