/ Rule 9B Status Update · Updated 2026-10-22

Rule 9B 2 years on, where private companies actually are.

MCA Rule 9B (mandatory dematerialisation of unlisted company shares) became effective for private limited companies from October 2024 (post extensions). October 2026 marks 2-year anniversary. Significant number of private limited companies still non-compliant - creating transaction / fundraising / M&A friction. Here's the current state as of October 2026 and the remediation path.

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Written by CA Durgesh Chavda

Chartered Accountant (ICAI) · Founder, Bharat Quantum Prospera · US incorporation, India-US DTAA, FEMA ODI, NRI taxation, cross-border structuring · LinkedIn

/ Current compliance state

What we're seeing on the ground.

Fully compliant private companies: well-funded startups + mid-size companies with institutional investors - typically 100% complete.
Partially compliant: shares of founders / core team demat; angel investor shares still physical (because investor non-responsive to demat request).
Entirely non-compliant: smaller family-held private limited companies, older companies with scattered small shareholders - likely 30-40% of eligible companies still have non-demat shares.
Enforcement: ROC filing blocks (DIR-12, PAS-3) + Section 450 default penalty + inability to complete share transfer / allotment / buyback / transmission.
Transaction friction: M&A deals delayed by 30-60 days when target hasn't demat'd pre-closing. Fundraising rounds blocked when new allotment can't be made in physical form.

/ Who's exempt (recap)

The scope.

Small companies: paid-up capital up to INR 4 crore + turnover up to INR 40 crore (Section 2(85)). Growth-stage startups cross this threshold quickly.
Government companies.
Nidhi companies.
Everyone else: in scope under Rule 9B.

/ Form PAS-6 half-yearly compliance

The ongoing filing.

Form PAS-6: Reconciliation of Share Capital Audit Report. Half-yearly filing within 60 days of each half-year end (30 September + 31 March).
For companies in demat form, Form PAS-6 is now mandatory. Many companies have missed FY 2024-25 + 2025-26 PAS-6 filings - creating late fee exposure under Section 47.
CA certification of PAS-6 as prescribed in the form.
October 2026: September 2026 half-year PAS-6 due by 29 November 2026.

/ Remediation path for non-compliant companies

90-day execution plan.

Compliance gap assessment: review existing shareholder list; identify physical-share holders.
ISIN application: via Registrar & Transfer Agent (RTA) to NSDL / CDSL. 15-30 day approval.
Depository Participant (DP) appointment: company's DP for facilitating demat.
Shareholder communication: formal letter + email + phone follow-up to all physical-share holders. Standard templates + repeat follow-ups.
Shareholder's demat account opening + DRF submission: shareholders open demat with their respective DPs; submit Dematerialisation Request Form + physical share certificate.
Company RTA verification + demat confirmation: RTA matches share certificate + confirms demat.
Physical certificates cancellation.
Form PAS-6 half-yearly filing catching up on missed periods.
Lost certificate issuance under Rule 6: for lost / destroyed certificates - public notice + indemnity bond + Rule 6 cert.
Unresponsive shareholder documentation: RPAD letters + emails + newspaper notice attempts documented.

Typical remediation timeline: 60-120 days depending on shareholder count + responsiveness.

/ M&A + fundraising-specific attention

Pre-closing clean-up.

Target company pre-M&A diligence: buyer's DD will surface Rule 9B non-compliance. Deal pauses until target completes demat (30-60 day delay).
Series A / B / C pre-money: new allotment to investor must be in demat form (Rule 9B). If company isn't demat'd, round delays.
IPO pre-filing: Rule 9B + SEBI pre-IPO demat required. Must be fully demat before DRHP.
Secondary sale: founder / angel exit cannot complete via physical share transfer. Buyer insists on demat first.
Pre-emptive demat is the easy path; reactive demat under transaction time pressure is the hard path.

Last updated: 2026-10-22.

/ Ready when you are

Rule 9B 2 years on. Still have physical-share holders?

Blocks every cap table change: allotment, transfer, buyback, transmission. BQP 60-120 day remediation + ongoing PAS-6 compliance.

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FAQ

Common questions, answered.

What's the current state of Rule 9B compliance in October 2026?

Mixed. Well-funded startups + mid-size institutional-backed companies typically fully compliant. Smaller family-held + older private companies with scattered shareholders - still 30-40% non-compliant. Form PAS-6 half-yearly filing has caught up for compliant companies; non-compliant companies face late fee + Section 450 default penalty exposure.

What transactions does Rule 9B block for non-compliant companies?

New share allotment (fundraising, ESOP exercise), share transfer (M&A, secondary sale, founder exit), buyback, transmission (on shareholder death), bonus / rights issue. Essentially every cap table change. Also: Form PAS-6 half-yearly filing mandatory for companies in demat scope - non-filing attracts Section 47 late fee + Section 450 continuing default penalty.

Can a Series A investor insist on target company demat before investing?

Yes - standard practice now in 2026. Series A term sheet typically includes closing condition: 'Target to complete dematerialisation of all outstanding shares under Rule 9B before Closing'. Target company must execute demat (30-60 days) before investor's funds flow. Material deal timing impact if left to last minute.

What if a shareholder refuses to demat?

Company documents attempts (RPAD letters, emails, newspaper notice, phone follow-ups). Share remains physical in that shareholder's name but company's Rule 9B obligation is to facilitate demat, not force it. For future share transfer / allotment: that specific shareholder's shares will not be transferable until they demat. Compliance posture: company has demonstrated reasonable efforts.

Does BQP help with Rule 9B remediation + PAS-6?

Yes - compliance gap assessment, ISIN application via RTA, DP appointment, shareholder communication (standard templates + follow-ups), demat execution co-ordination, Form PAS-6 half-yearly filing + catch-up on missed periods, lost certificate Rule 6 handling, unresponsive shareholder documentation. Standard engagement for private companies with 20-500+ shareholders. WhatsApp +91 78018 87130.