Come Wednesday and you won’t be able to transfer shares of listed companies if they are held in physical form. Markets regulator Sebi has set December 5 as the deadline from when shares of listed companies could be transferred only in demat form. Currently, along with demat shares, physical shares can also be transferred from the seller to the buyer. Here are some issues related to this rule:
Why has this rule come into effect?
In the last few years, there have been frauds involving physical shares, unclaimed dividend that accrued on such shares and also transfer of these shares. In case of demat shares, there’s a bank account linked to the demat account and this aspect could substantially limit frauds related to physical shares.
Will all physical shares of all listed companies become worthless?
No. Every physical share will retain its value. The Sebi rule doesn’t take away the value of any physical share. However, these shares will become illiquid, which means while these shares will have their intrinsic value linked to the company’s stock price in the market, but to realise that value one will have to demat those physical shares and then sell in the market to get the money in their bank account. Investors who do not want to sell their shares, can continue to hold them in physical form
How to sell physical shares held by a deceased person?
If the current value of the shares is up to Rs 2 lakh, the legal heir can approach the company whose shares he/she has, along with the death certificate of the deceased, to change the name of the owner. He/she can demat the shares and sell them in the market. In case the value of the shares is more than Rs 2 lakh, the legal heir needs to appoint a lawyer to get a probate from the court to establish legal ownership, then change the name on the shares, demat those and sell in the market. Also, the current rules allow transfer of title of shares in case of inheritance and succession, and also for interchanging of the order of the name of shareholders.
What happens in case one of the joint owners is dead?
The existing joint owner can approach the company whose shares he/she has with the death certificate of the deceased and change the ownership status to single from joint. After that he/she can demat the shares and sell in the market.
What challenges are companies, and registers & transfer agents facing?
Investors holding physical shares are reluctant to follow the rules and formalities prescribed by the Companies Act and Sebi, to convert physical shares into demat form.
Source: Economics Times