Fractional Entitlement in case of Bonus Issue and disbursement of sale proceeds thereafter

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SUJIT SENGUPTA (Querist)
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20 May 2021 Can a listed company open a demat account in its name to hold the aggregate of Bonus Issue Fractional Entitlement for later disbursement of its sale proceeds to Entitlement holders
or
The demat account has to be in an individual name of any of its Director or KMP as Trustee/Nominee for further action

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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07 July 2024 In India, a listed company can indeed open a demat account to hold the aggregate of Bonus Issue Fractional Entitlements. However, the approach and specifics can vary based on regulatory and practical considerations:

### Holding Fractional Entitlements in a Demat Account

1. **Company Demat Account**: A listed company can open a demat account in its own name to hold the aggregate of Bonus Issue Fractional Entitlements. This demat account acts as a centralized repository managed by the company itself.

2. **Individual Demat Account**: Alternatively, the company can open a demat account in the name of an individual Director or Key Managerial Personnel (KMP) as Trustee or Nominee. This individual then holds the entitlements on behalf of the company and manages them according to the company's instructions.

### Considerations:

- **Regulatory Compliance**: The company must ensure compliance with Securities and Exchange Board of India (SEBI) regulations and the Depositories Act, 1996, which govern dematerialization and holding of securities.

- **Operational Convenience**: Opening a demat account in the company's name may simplify administrative procedures and provide direct oversight by the company's management.

- **Trustee/Nominee Arrangement**: Opting for an individual as a Trustee or Nominee involves appointing someone within the company to manage the demat account and oversee disbursements or other actions related to the Bonus Issue Fractional Entitlements.

### Practical Implementation:

- **Board Approval**: The decision to open a demat account and the method chosen (company name or individual trustee/nominee) typically requires approval by the Board of Directors.

- **Clear Instructions**: Regardless of the approach, clear instructions and guidelines should be established on how the entitlements will be managed, disbursed, or utilized.

- **Reporting and Compliance**: Regular reporting and compliance with SEBI guidelines ensure transparency and legal adherence in managing the Bonus Issue Fractional Entitlements.

### Conclusion:

Both options—opening a demat account in the company's name or in an individual's name as Trustee/Nominee—offer viable paths for managing Bonus Issue Fractional Entitlements. The choice depends on factors such as regulatory requirements, operational preferences, and the company's internal governance framework. It's advisable to consult with legal and financial advisors to determine the most suitable approach based on specific circumstances and regulatory compliance needs.