Your Indian Subsidiary's Shares May Need to Go Digital: Here's What That Actually Means

Most foreign companies that set up a subsidiary company in India focus their compliance attention on the obvious things, tax filings, RBI reporting, statutory audits. Dematerialisation of shares rarely makes that list, largely because it sounds like a back-office formality. It isn't. For a growing number of private companies, including foreign-owned entities, it has become a mandatory step, and missing it can quietly stall the very things a parent company most wants to do with its Indian subsidiary: fund it, restructure it, or exit it.

Here's what the rule actually requires, and what it means in practice.

What the rule 9B says

Under Rule 9B Companies Act (Prospectus and Allotment of Securities) Rules, 2014, certain private companies, excluding small companies and a few exempted categories, must move their shares out of paper form and into electronic (dematerialised) form. This applies to foreign-owned private companies as well.

In practical terms, three things follow:

Existing physical share certificates need to be converted into dematerialised form. The company needs to obtain an ISIN (International Securities Identification Number), essentially a unique identifier for its shares, the same system used for listed securities. And from that point forward, every future issue or transfer of shares must happen only in demat form. Physical share certificates, in other words, stop being a valid way to hold or move equity in these companies.

For a foreign-owned subsidiary, this has one additional layer: the parent company, as the shareholder, needs to hold its shares in demat form. That means opening a Demat account in India in the parent company's name, not something most overseas parent companies have ever needed to think about.

Why this matters more than it first appears

The rule itself is simple enough. What makes it worth attention is what happens if a company that falls within its scope doesn't comply in time.

If dematerialisation of shares isn't completed, the parent company won't be able to bring in additional capital, no fresh equity infusion into the Indian entity. Selling or transferring the shares, whether partially or as a full exit, also isn't possible. And because both capital infusion and exit routes are affected, this can quietly limit the company's options exactly when flexibility matters most, during a funding round, a restructuring, or a strategic decision about the India business.

None of this is designed to be punitive. It reflects a broader shift in Indian corporate regulation toward digital, traceable shareholding; the same logic that has applied to listed companies for years is now extending to a wider set of private ones. But the practical consequence for an unprepared subsidiary is real, and it tends to surface at the worst possible time, right when the parent company needs to act.

What the process actually involves

For most foreign parent companies, the unfamiliar part isn't the concept, it's the mechanics of opening a Demat account in India as a non-resident shareholder, coordinating with a depository (NSDL or CDSL) and a Registrar and Transfer Agent, and converting share certificates that may have sat unchanged since incorporation.

We handle this as an end-to-end process: assessing whether Rule 9B applies to the entity in the first place, opening the Demat account for a foreign company in India, obtaining the ISIN, coordinating with NSDL/CDSL and the RTA, and managing the PAN application and the conversion of existing physical shares. From the parent company's side, what's needed is fairly limited, largely KYC documentation and the related attestations. The coordination, filings, and follow-through sit with us.

A word on timing

Companies to which Rule 9B applies are expected to complete this within prescribed timelines, and the sensible approach is to treat it the way you would any other structural compliance item, address it before it becomes a blocker to a transaction, rather than in response to one. If a capital infusion or a share transfer is already on the horizon, this is worth checking well ahead of it.

If you're not sure whether this applies to your entity

That's a reasonable place to start. Applicability depends on the company's classification under the Companies Act, and it's a quick assessment to make, not a lengthy one. If it turns out the rule does apply, the rest of the process can move at a measured pace, without disrupting whatever else the subsidiary has planned.

Conclusion

India’s corporate compliance framework is evolving and dematerialisation of share has become an important compliance part for many private companies also foreign owned Indian subsidiaries. Ensuring all the compliance requirements applies to your company and addressing it well in advance can help avoid delays when important business decisions arise.

If you’re unsure whether Rule 9B applies to your Indian subsidiary company or need professional assistance with the dematerialisation of shares process, our team at KDP Accountants provides end-to-end assistance for foreign-owned companies operating in India. Connect with us at enquire@kdpaccountants.com, we will assist you with your Indian corporate compliance needs.

FAQs

Does this apply to every private company in India?

No. Rule 9B excludes small companies and certain exempted categories. Whether a specific foreign-owned subsidiary falls within scope depends on its classification, which is worth confirming rather than assuming either way.

What is an ISIN, and why does a private company need one?

An ISIN is a unique code that identifies a company's securities within the depository system, the same mechanism used for listed shares. Once a company's shares move to demat form, the ISIN is what makes them identifiable and transferable within that system.

Can the parent company use an existing Demat account, or does it need a new one in India?

It needs a Demat account in India specifically, opened for the purpose of holding the Indian subsidiary's dematerialised shares.

What happens to share certificates that were issued years ago in physical form?

They need to be converted into demat form as part of this process, this is one of the core steps, alongside obtaining the ISIN and setting up the account structure.

What's the actual risk if a company delays this?

The main practical consequences are an inability to infuse further capital and an inability to transfer or exit shareholding until dematerialisation is complete, both of which matter most precisely when a company is trying to move quickly.

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Nidhi Mehta is associated with the profession of Company Secretaries and is engaged in advising businesses on corporate law, governance, and regulatory compliance. Her professional experience encompasses a wide range of secretarial matters, including Companies Act, 2013 compliances, corporate advisory, ROC filings, board and shareholder processes, share capital transactions, corporate restructuring, Dematerialisation of shares and all other ongoing compliance management. With a practical and solution-oriented approach, she strives to present complex concepts in a clear and accessible manner, helping businesses and professionals stay informed, compliant, and aligned with evolving corporate laws.