1. Yes, But with Limitations
- A Public Limited Company can hold physical shares of other companies, especially unlisted or private companies whose shares are not dematerialized.
- However, for listed companies, shares must be held in dematerialized form, as per SEBI regulations.
- The holding of physical shares is not prohibited, but it is discouraged and heavily regulated, especially for transfers.
2. SEBI Regulations on Physical Shareholding
- As per SEBI notification dated April 1, 2019, transfer of listed shares in physical form is not allowed (except in cases of transmission or transposition).
- Listed Public Limited Companies must dematerialize their shareholdings to execute any transfer or sale.
- Shareholders of listed entities must convert physical shares to DEMAT before selling or transferring them.
3. Holding Physical Shares in Unlisted Companies
- Public companies may hold physical share certificates of unlisted companies, as these companies may not be linked with depositories.
- Such holdings are valid but must be properly recorded and safeguarded, and reflected in the company’s register of investments.
- If the unlisted company opts for dematerialization, the holding public company must initiate conversion to DEMAT.
4. Accounting and Record-Keeping Obligations
- Physical shares held must be recorded as non-current investments in the company’s books of accounts.
- Details such as certificate number, folio number, number of shares, and face value must be maintained.
- The company must ensure that title documents are secure and accessible for audit and inspection.
5. Preference for Dematerialization
- For ease of transfer, risk reduction, and regulatory compliance, companies are strongly encouraged to dematerialize physical shares.
- Demat shares allow better control, faster transactions, and clear ownership tracking.
- SEBI and MCA continue to push toward full digitization of securities in both listed and unlisted public companies.
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