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Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023

Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023

Introduction:

The Companies (Prospectus and Allotment of Securities) Rules, 2014 have undergone significant changes with the introduction of the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. These amendments bring about crucial modifications that impact public and private companies, aiming to streamline processes and enhance transparency in the issuance and management of securities.

Date of Notification– 27th October 2023

Date of Enforcement – 27th October 2023

  • Key Amendments for Public Companies:
  • Share Warrants Conversion:

Public companies that issued share warrants before the Companies Act, 2013, and haven’t converted them into shares are required to take specific actions.

Within three months of the amendment’s commencement, companies must inform the Registrar about the details of such share warrants using Form PAS-7.

Within six months of the amendment’s commencement, companies must urge bearers of share warrants to surrender them and dematerialize the shares. The company should publish notices in Form PAS-8 on its website and in newspapers.

  • Non-Surrender Consequences:

If any bearer of share warrants fails to surrender them within the specified period, the company is obligated to convert such share warrants into dematerialized form and transfer them to the Investor Education and Protection Fund under section 125 of the Companies Act.

  • Key Amendments for Private Companies:
  • Dematerialization of Securities:

Private companies (excluding small companies) are now mandated to issue securities only in dematerialized form and facilitate the dematerialization of all their securities.

Compliance with the Depositories Act, 1996, and related regulations is required.

  • Timeline for Compliance:

Private companies falling outside the definition of small companies as on the last day of a financial year ending on or after March 31, 2023, must comply with these rules within eighteen months of the closure of such financial year i.e by 30th September, 2024.

  • Promoter and Director Compliance:

Private companies making offers for securities or buyback, or issuing bonus shares or rights offers, must ensure that the entire holding of securities of their promoters, directors, and key managerial personnel is dematerialized before making such offers.

  • Holder’s Responsibilities:

Holders of securities in private companies must dematerialize their securities before transferring them or subscribing to additional securities after the compliance date.

Provisions of rule 9A, from sub-rules (4) to (10), will apply mutatis mutandis to the dematerialization process under this rule.

Exemption for Government Companies:

Notably, the amended rules exempt government companies from the provisions outlined in the private company section.

Conclusion:

These amendments bring forth a more stringent regulatory framework, particularly for public and private companies regarding the issuance and management of securities. It is imperative for companies falling under the purview of these amendments to stay informed and ensure timely compliance to avoid legal repercussions.

Downloads Notification | Form PAS-8

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