Rule 9B demat mandate

Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules requires every private company that is not a "small company" as defined under Section 2(85) to dematerialise its existing securities and issue any new securities only in dematerialised form, through a Registrar and Transfer Agent connected to NSDL or CDSL. A company crosses out of small-company status once its paid-up capital or turnover exceeds the prescribed thresholds, and from that point forward physical share certificates are no longer sufficient for new allotments.

Getting an ISIN issued is the practical first step: the company appoints an RTA, the RTA coordinates with a depository to allot an International Securities Identification Number for each class of security, and existing physical holdings are then converted through a dematerialisation request. Until that conversion is complete for all holders, the company cannot make further allotments to shareholders who remain in physical form.

Rule 9B non-compliance is a hard blocker in fundraising diligence — a lead investor's counsel will not let a priced round close with new shares issued in physical form to a company that should already have demated, since the resulting certificates would themselves be non-compliant on day one.

The cap table, where Rule 9B demat mandate appears as a computed field traced to the ledger event that created it.