Rematerialisation of Shares After Becoming a Small Company from 2025

Rematerialisation of Shares After Becoming a Small Company from 2025. With the revision in the definition of Small Company under the Companies Act, 2013 (effective 01 December 2025), a significant number of private companies that were earlier classified as non-small companies will now fall within the Small Company category, this change has triggered an important compliance question regarding Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which mandates dematerialisation of shares for certain companies.
The core issue is whether companies that have already dematerialised their shares under Rule 9B can reverse that position after subsequently becoming a Small Company.
Rule 9B and Its Applicability
Rule 9B mandates dematerialisation of securities for:
every private company, other than a small company, as on the applicability date prescribed under the Rules and requires such companies to issue securities only in dematerialised form, and ensure that transfer of securities takes place only through demat mode. 
Revised Definition of Small Company (2025)
As per Section 2(85) of the Companies Act, 2013, with effect from 01 December 2025, a Small Company means a company, other than a public company, whose:

paid-up share capital does not exceed Rs.10 crore, and

turnover does not exceed Rs.100 crore.

This expansion brings many private companies, previously covered under Rule 9B, within the Small Company fold.
Can Such Companies Exit Dematerialisation?
A practical question arises:
If a company dematerialised its shares because it was not a Small Company at the time of applicability of Rule 9B, can it rematerialise its shares after subsequently becoming a Small Company?
The answer requires careful distinction between eligibility and exit.
Rule 9B does not contain any provision permitting automatic exit from dematerialisation once it becomes applicable and The rule also does not provide a mechanism for surrendering ISIN merely due to a change in Small Company status.
Rematerialisation — What Is Legally Permissible ?
Under the Depositories Act, 1996 and SEBI (Depositories and Participants) Regulations, shareholders are permitted to rematerialise their holdings individually, subject to prescribed procedures.
However, while rematerialisation is permitted at the shareholder level, the legal position regarding a company-level exit from Rule 9B remains unclear. In the absence of any amended rule or clarification from the Ministry of Corporate Affairs following the revised definition of Small Company, companies that had earlier complied with Rule 9B continue to face uncertainty on whether dematerialisation obligations can be withdrawn.
Important Clarification

Shareholders may request rematerialisation of their securities.

But the company cannot surrender its ISIN or discontinue demat compliance merely because it has become a Small Company later.

Rule 9B compliance is company-centric, not shareholder-centric.

The revised definition of Small Company expands eligibility for regulatory relaxations, but it does not retrospectively nullify obligations already triggered under Rule 9B.

Companies newly qualifying as Small Companies are not automatically entitled to exit dematerialisation if Rule 9B had already applied.

Rematerialisation at shareholder level is permissible, but company-level surrender of ISIN is not supported by the current legal structure..

Until Rule 9B is amended or a formal exemption is notified by MCA, dematerialisation remains a continuing obligation for companies to which it once applied.

Compliance decisions must therefore be taken based on the applicability status at the relevant time, not solely on subsequent classification as a Small Company.

With the revision in the definition of Small Company under the Companies Act, 2013 (effective 01 December 2025), a significant number of private companies that were earlier classified as non-small companies will now fall within the Small Company category, this change has triggered an important compliance question regarding Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, which mandates dematerialisation of shares for certain companies.

The core issue is whether companies that have already dematerialised their shares under Rule 9B can reverse that position after subsequently becoming a Small Company.

Rule 9B and Its Applicability

Rule 9B mandates dematerialisation of securities for:

every private company, other than a small company, as on the applicability date prescribed under the Rules and requires such companies to issue securities only in dematerialised form, and ensure that transfer of securities takes place only through demat mode.

Revised Definition of Small Company (2025)

As per Section 2(85) of the Companies Act, 2013, with effect from 01 December 2025, a Small Company means a company, other than a public company, whose:

paid-up share capital does not exceed Rs.10 crore, and
turnover does not exceed Rs.100 crore.

This expansion brings many private companies, previously covered under Rule 9B, within the Small Company fold.

Can Such Companies Exit Dematerialisation?

A practical question arises:

If a company dematerialised its shares because it was not a Small Company at the time of applicability of Rule 9B, can it rematerialise its shares after subsequently becoming a Small Company?

The answer requires careful distinction between eligibility and exit.

Rule 9B does not contain any provision permitting automatic exit from dematerialisation once it becomes applicable and The rule also does not provide a mechanism for surrendering ISIN merely due to a change in Small Company status.

Rematerialisation — What Is Legally Permissible ?

Under the Depositories Act, 1996 and SEBI (Depositories and Participants) Regulations, shareholders are permitted to rematerialise their holdings individually, subject to prescribed procedures.

However, while rematerialisation is permitted at the shareholder level, the legal position regarding a company-level exit from Rule 9B remains unclear. In the absence of any amended rule or clarification from the Ministry of Corporate Affairs following the revised definition of Small Company, companies that had earlier complied with Rule 9B continue to face uncertainty on whether dematerialisation obligations can be withdrawn.

Important Clarification

Shareholders may request rematerialisation of their securities.
But the company cannot surrender its ISIN or discontinue demat compliance merely because it has become a Small Company later.
Rule 9B compliance is company-centric, not shareholder-centric.

The revised definition of Small Company expands eligibility for regulatory relaxations, but it does not retrospectively nullify obligations already triggered under Rule 9B.

Companies newly qualifying as Small Companies are not automatically entitled to exit dematerialisation if Rule 9B had already applied.
Rematerialisation at shareholder level is permissible, but company-level surrender of ISIN is not supported by the current legal structure..
Until Rule 9B is amended or a formal exemption is notified by MCA, dematerialisation remains a continuing obligation for companies to which it once applied.

Compliance decisions must therefore be taken based on the applicability status at the relevant time, not solely on subsequent classification as a Small Company.