SEBI Permits Association of Persons (AOPs) to Open Demat Account in their Own Name

The Securities and Exchange Board of India (SEBI) has issued a new circular dated February 25, 2025, allowing Associations of Persons (AoP) to open demat accounts in their own name. This decision aims to enhance ease of doing business and facilitate investment for such entities in securities like mutual fund units, corporate bonds, and government securities.

Background & Decision

Previously, AoPs could only open demat accounts under the names of natural persons representing the entity. However, SEBI received requests to permit direct demat account openings in the name of AoPs. After evaluating the legal framework and consulting stakeholders, SEBI has decided to allow AoPs to open demat accounts in their own name for specific securities, subject to certain conditions.

What are the Key Provisions of the Circular?

SEBI has amended the Master Circular for Depositories (dated December 03, 2024) by introducing a new provision titled "Opening of Demat Account in the Name of Association of Persons (AoP)." The key aspects of this amendment include:

• Eligibility and Permitted Securities:
• AoPs can hold units of mutual funds, corporate bonds, and government securities in dematerialised form.
• The AoP must ensure that it subscribes only to financial instruments permitted by its governing statutes.
• Equity shares cannot be subscribed to or held in such demat accounts.
• Compliance and Documentation Requirements:
• The PAN details of the AoP and its Principal Officer must be provided.
• The Principal Officer is defined as the secretary, treasurer, manager, agent, or any person responsible for the administration of the AoP.
• While opening a demat account, the AoP must confirm that it will comply with all applicable statutory provisions.
• Legal and Liability Provisions:
• In case of any dispute, the Principal Officer will be treated as the legal representative of the AoP.
• All members of the AoP shall be jointly and severally liable for the AoP’s obligations.

Implementation and Applicability

To facilitate this new provision, SEBI has directed depositories to:

• Update their systems and implement necessary changes.
• Amend relevant bye-laws, rules, and regulations.
• Inform market participants and investors about these changes through their respective websites.

The provisions of this circular will come into effect from June 02, 2025.

Below, we have attached the official circular issued by the Securities and Exchange Board of India (SEBI) regarding the Demat account opening for AOPs,

Who is the Association of Persons (AOPs)?

An Association of Persons (AOP) is a group formed by individuals, companies, or other entities that come together to achieve a common purpose or engage in a joint business activity. Unlike a corporation, an AOP does not have a separate legal identity but is recognised as a taxable entity under income tax laws. The members of an AOP share profits and liabilities based on their agreed terms, and taxation is applied either at the entity level or individually, depending on the tax regulations.

For more detailed information, read the basics of association of persons

Key Takeaways

• SEBI Approval: AoPs can now open demat accounts in their own name for holding specific securities.
• Permitted Securities: Only mutual fund units, corporate bonds, and government securities are allowed; equity shares are not permitted.
• Compliance Requirements: AoPs must provide their PAN and that of their Principal Officer while ensuring compliance with governing statutes.
• Liability and Legal Provisions: The Principal Officer will be the legal representative in case of disputes, and all members are jointly and severally liable.
• Implementation: This decision will be effective from June 2, 2025, with depositories required to update systems and inform investors.

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