Four-or-more-holder account

The standard demat account form has room for only three joint holders. Physical share certificates, however, are sometimes held by four people, or more.

For that situation, depositories have a special rule. A separate account can be opened in the names of all four or more joint holders. But this account is not a normal, ongoing demat account. It exists for one purpose only: to dematerialise that specific holding.

Once the certificates are dematerialised, the account has done its job. It is closed, and the shares move to a fresh account opened in the names of a maximum of three holders.

The DP captures the names of all 4 or more joint holders by numbering them: the first holder's name goes in the first-holder field, and the remaining names are accommodated in the second- and third-holder fields together. An appropriate annexure to the account opening form records the additional names, addresses and signatures.

This account is deliberately restricted. No standing instructions to receive credits, no receipt instructions, no new issue applications, and no other instruction that would credit this account are accepted. An undertaking is obtained from the clients that the account will not be used for primary-market allotments or secondary-market purchases — the only credits permitted are dematerialisation itself, and any bonus, rights or preferential offer arising on the existing holding.

The DP processes the dematerialisation request in the usual way, checking that the pattern of holding on the certificate matches the pattern of holding in the account. Once all the certificates in that holding pattern have been dematerialised, the beneficial owner opens a new demat account in the name of a maximum of three holders and transfers the securities there; once the four-or-more-holder account's balance reaches nil, it is closed. For a Trust holding securities in the joint names of four or more trustees, the same procedure applies without any restriction on receiving credits.

Four siblings — Mr A, Mr B, Mr C and Mr D — jointly hold a physical certificate for 2,000 shares of a listed company, worth Rs 9,60,000 at Rs 480 each. The standard account-opening form has no room for a fourth joint holder, so their DP opens a four-or-more-holder account, with Mr A as first holder and Mr B, Mr C and Mr D accommodated in the second- and third-holder fields via an annexure.

The DP dematerialises the 2,000 shares into this account. No standing instruction to receive further credits is accepted on it — if the company later announces a rights issue, only the rights entitlement on this existing holding may be credited here, not a fresh market purchase by any of the four.

Once the 2,000 shares are fully dematerialised, the four siblings open a new account in the names of Mr A, Mr B and Mr C only (the maximum of three), transfer the 2,000 shares into it, and the original four-or-more-holder account, now at a nil balance, is closed.

Chapter 4's detailed footnote on operations of a joint account sets out this entire procedure as a separate rule for four-or-more joint holders, immediately after the standard three-holder joint account discussion.

Expect a question testing the maximum number of holders in a standard account (three) against the special procedure for four or more, and on what the four-or-more-holder account may — and may not — be credited with.

• The standard account-opening module allows a maximum of three joint holders; four or more needs this special, purpose-limited account.
• No standing instructions to receive credits are permitted on a four-or-more-holder account — only dematerialisation, bonus, rights or preferential offers on the existing holding.
• The account is temporary by design. Once dematerialisation completes, the holders must open a fresh, standard account with a maximum of three names and transfer the securities there; the original account is then closed.
• Trust holdings in the joint names of four or more trustees follow the same opening procedure but without the credit restriction that applies to individual joint holders.