A Demat account allows investors to hold their securities in digital form. But who is an investor? The definition of investor is not limited to individuals alone. That being said, you might wonder – Can private limited company open Demat account?
Before we get into the topic, let’s cover some basic concepts to better understand how entities can invest in India.
DEMAT Account
Almost 25 years ago, investing and holding shares was completely different from today. Buying and selling shares weren’t at your fingertips and the settlement time used to take weeks before it finally reached you – the investor.
Investors can also be NRIs, partnerships, and even companies. They need not be individuals only. Anyone can invest, provided they follow the correct documentation. One such important requirement is the DEMAT account.
Post-1997, shares were no longer held in physical certificate form – all the shares were dematerialized and converted into digital form. These shares are then held in the dematerialization account or the DEMAT account.
Why Do You Need To Open A Demat Account?
Without a Demat account, it is impossible to buy and sell securities in India. Think of the importance of a bank account – It holds your cash balance for safekeeping and keeps it safe from theft, loss, and any damage.
The same applies to physical certificates as well. With a Demat account, you can hold all securities in electronic form, without losing track of any of your investments.
Advantages Of Opening A Demat Account
- Securities are stored in electronic format, greatly increasing the speed of transactions and reducing the processing time.
- Greater security against threats that are common with physical assets – theft, damage, forgeries, etc.
- Easier for online traders who have made trading a full-time career.
- Hold multiple types of securities with a single Demat Account – Stocks, mutual funds, ETFs, and debt instruments.
Who Can Open A Demat Account In India?
A retail investor is not the only one that can open a Demat account. There are various entities that open Demat accounts and conduct investing as well as trading entities. A private limited company is one such example.
1. Indian Resident
Persons who reside in India for a period of 182 days or more in a financial year are considered Indian residents. Even individuals who have resided in India for a combined period of more than 365 days in the previous 4 years and 60 days in the relevant financial year are considered Indian residents.
2. Hindu Undivided Family
A HUF is a legal entity that consists of a Karta, who is the oldest member or head of the family, and other family members are coparceners.
If a HUF opens a Demat account, it is done in the name of the oldest male family member AKA Karta, who is also the signatory authority for all trading and Demat account transactions.
3. Domestic Corporation / Private Company
A domestic corporation is a business that operates completely within its country of incorporation. It follows different regulations than a non-domestic corporation. This includes a long list of examples including private companies, brokerage firms, MSMEs, and more.
4. Non-Residential Indian
NRIs are people of Indian origin, residing in a foreign country for the majority of a financial year. By definition, NRIs are persons of Indian descent residing in India for a period lesser than 182 days during the previous fiscal year.
They include individuals who reside in foreign countries for the purpose of employment. NRIs can trade in the Indian markets as well – through their choice of DP or depository participant.
5. Clearing Member
A clearing member is the entire holdings of a broker, including his clients i.e., a pool account. This also includes the securities from where the central depositories are collected by the broker.
Can A Private Limited Company Invest In Shares?
Yes, private ltd companies can invest in publicly listed shares. In fact, it is a common way for private limited companies to raise capital and grow their business. Private limited companies can buy shares in other companies as a form of investment, or they can issue shares to raise capital for their own business.
Also Read: How To Find DEMAT Account Number From PAN?
In Closing
That’s all for this blog on – Can Private Limited Company Open Demat Account? We hope you got your answer and learned something new about the markets. Till next time, Happy Investing!
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