Mandatory Demat of Shares of Section 8 Company and Form PAS 6

Section 8 Companies of India serve a noble cause. These are not-for-profit organizations formed to promote social causes. Their objectives may range from education, charity, research, or any such activity. They are different from other companies in the sense that they do not seek to generate profits. Nevertheless, they are bound to comply with corporate laws just like any other organization. One such compliance is dematerialization of shares.

This rule applies to unlisted public companies, including Section 8 Companies. Dematerialization, often called "demat," refers to converting physical share certificates into an electronic format. This process ensures better transparency, simplifies transactions, and reduces fraud. For Section 8 Companies, compliance with this rule is equally critical.

Why is Dematerialization Necessary?

The Securities and Exchange Board of India, or SEBI, brought the dematerialization mandate to improve efficiency and accountability in corporate operations. Share certificates can be lost, damaged, or forged. These risks are eliminated by dematerialization because share records are kept in electronic form.

This process will ensure better record-keeping for Section 8 Companies. It also strengthens their credibility. The more transparent the financial practices, the more confident donors and stakeholders will be. This, in turn, helps the company build long-term trust.

What is Form PAS-6?

Form PAS-6 is an important tool introduced by the Ministry of Corporate Affairs, MCA. It helps companies adhere to the mandate of dematerialization. Filing Form PAS-6 is mandatory for all unlisted public companies. Section 8 Companies are also covered under this requirement.

This return needs to be submitted semi-annually. It enables the government to check if all the shares have been dematerialized or not. Defaulting to submit this return on the due date may lead to fines for the company.

Key Features of Return PAS-6

Form PAS-6 is compulsorily required to be submitted by each company having share capital. Section 8 Companies also need to file this return.

• Due Date: Companies must submit the return within 60 days from the closing of every half-year.
• Information Needed: The form contains information such as ISIN (International Securities Identification Number) and the number of shares issued and held in demat form.
• Certification: The accuracy of the form should be certified by a Chartered Accountant or Company Secretary.

Advantages of Dematerialization

Dematerialization has several advantages, not only for the business but also for the shareholders. Some of the key advantages include:

• Safety: Electronic shares cannot get lost or torn like physical certificates.
• Ease of Transfer: Shares can be transferred through the electronic route, and hence, this becomes quicker and easier.
• Cost Savings: Printing and maintaining physical share certificates incur cost. Demat shares eliminate all these costs.
• Greater Transparency: Maintaining electronic records ensures tamper-proof and accurate documentation.

How to Comply

Section 8 Companies need to undertake a number of steps in order to comply with the dematerialization rule:

• Apply for ISIN: Obtaining an ISIN number-an exclusive identity number to securities
• Depository onboarding: Companies should join the list of depositories like NSDL or CDSL.
• Updating AoA: Few companies would be requiring amendment to AoA regarding its dematerialization policy.
• Inform Shareholder: The shareholder needs to be given a notice about its convertibility to electronic share forms.
• File Form PAS-6: This form needs to be duly submitted by the companies to avoid any penalties as well as compliance.

Issues for Section 8 Companies

The dematerialization process is relatively simple but, in this case, the Section 8 Companies have some specific issues.

• Restricted Resources: Such companies exist as non-profit organizations with fewer financial and technical means for smooth compliance.
• No proper awareness: Smaller organizations may not be highly aware of requirements and time for submitting Form PAS-6.
• Shareholder Resistance: Some shareholders, especially older ones, may resist switching to demat shares due to unfamiliarity with electronic systems.

Despite these challenges, complying with the dematerialization mandate is essential. It ensures legal compliance and improves the organization’s credibility among donors and stakeholders.

Why Seek Professional Help?

Filing Form PAS-6 and dematerialization compliance requires precision and expertise. Errors in filing or delay may attract penalties and bring a bad name to the company. The professionals engaged in the form include Chartered Accountants or Company Secretaries.

Section 8 Companies

For Section 8 Companies, the process of outsourcing compliance ensures that they can focus on their core objective: charitable work. Professionals take care of the complex filings and ensure the company complies with all legal requirements.

If you are looking for a helping hand to get through the complexities of paperwork, and other services like Company Registration in Bangalore, look no further than Mind Your Tax. 

Visit their official website and take the guidance of the best Tax consultant in Bangalore.