"We're too small for this" is the assumption Rule 9B doesn't allow here
Rule 9B exempts a "small company" from the demat requirement, and most founders read that as a size test, stay under the turnover and paid-up-capital caps and it doesn't apply. That test only ever reaches a company with no holding or subsidiary relationship. Section 2(85) excludes any holding company, subsidiary company, or Section 8 company from "small company" status outright, regardless of how small its own numbers are. A foreign parent holding shares in your Indian company makes your company a subsidiary. That exclusion held even when the small-company size thresholds themselves were raised in December 2025, since it's a separate carve-out, not a size line. An early-stage, single-digit-revenue subsidiary of a foreign parent is caught by Rule 9B on day one, the same as a large one.
What actually gets blocked, and since when
Once caught, and not yet compliant, the company cannot issue or allot any securities in any form. That includes an ESOP grant to a new hire, a bonus issue, a rights issue to existing shareholders, a fresh funding round, and a buyback. A shareholder whose own holding isn't dematerialised also can't sell it or subscribe to new securities. This isn't a future deadline to plan around: the compliance window, extended once already from September 2024 to 30 June 2025, has already passed, so a company that hasn't dematerialised is in ongoing default now, with the penalty running per day since. The Registrar has already penalised real companies for exactly this, one 2026 order found a company that didn't qualify as small as of its FY2023 balance sheet still hadn't complied by the extended deadline.
What the foreign parent actually has to do, and why it takes longer than a resident shareholder's KYC
Dematerialising the company's securities means the company itself needs an ISIN issued by a depository (NSDL or CDSL) and a Registrar and Transfer Agent appointed, and every shareholder, including the foreign parent, needs its own demat account. For the foreign parent specifically, that means its own PAN (mandatory before a demat account can be opened at all), and KYC documents, an authorised-signatories list, constitutional documents, notarised and apostilled, since they originate outside India. None of that is unusual paperwork on its own, but apostille and cross-border document exchange with a foreign parent routinely takes weeks, not the same few days a resident shareholder's KYC takes, so it needs to start well before the next share issuance is actually needed, not once a term sheet is already signed.
What goes wrong without a CA
The recurring pattern: a founder budgets time for the ESOP grant, the funding round, or the rights issue itself, and only discovers the demat prerequisite when the filing bounces back, at which point the foreign parent's apostille process becomes the thing actually holding up a round that was otherwise ready to close. Starting the dematerialisation, the company's own ISIN and RTA appointment, and the foreign parent's demat account and apostilled KYC, well ahead of the next planned issuance is what keeps this from becoming the bottleneck on a deal with its own timeline.