Corporate
Governance by Listed and Unlisted Companies
Meaning
Corporate Governance is the
framework of rules and practices by which a board of directors ensures
accountability, fairness, and transparency in a company's relationship with its
all stakeholders. So to Clinch, Corporate governance
includes the processes through which corporations' objectives are set and
pursued in the context of the social, regulatory and market environment.
Who
are Stakeholders?
-
Financiers
-
Customers
-
Management
-
Employees
-
Government
-
The Community
-
Creditors
-
Shareholders
In order to keep Company more
transparent in front of all stakeholders, corporate governance is the technique
by which companies are directed and managed. It means carrying the business keeping
in mind the stakeholders' desires. It is actually conducted by the board of
Directors and the concerned committees for the company's stakeholder's benefit.
Requirements
under Companies Act 2013
Corporate Governance is most important
for Listed Companies. To make listed companies more transparent and to align
the provisions related to SEBI LODR 2015 with the Companies Act 2013, SEBI
had come up with LODR 2015. Clause 49 in Listing Agreement is no longer present in Listing Agreement. It has been replaced by regulations in SEBI Listing Obligations and Disclosure Requirements 2015.
The objectives of the Clause 49 of Listing Agreement now read in Regulation 17 to 27 aligns with the provisions of the Companies Act, 2013, focuses on adopting best
practices on corporate governance and aims at making the corporate governance
framework more effective. The Provisions of Clause 49 of the erswhile Listing Agreement have been brought under Regulations 17 to 27 of SEBI LODR 2015
Key Takeaway:
SEBI LODR 2015 has come up with a new provision i.e. "Occassionally, the audit committee may meet without the presence of any executives of the listed entity"
Also, as per Reg 21(5) of SEBI LODR 2015, "Risk Management Committee would be applicable to top 100 listed entities which is determined on the basis of market capitalisation as at the end of the immediate previous FY."
Key Takeaway:
SEBI LODR 2015 has come up with a new provision i.e. "Occassionally, the audit committee may meet without the presence of any executives of the listed entity"
Also, as per Reg 21(5) of SEBI LODR 2015, "Risk Management Committee would be applicable to top 100 listed entities which is determined on the basis of market capitalisation as at the end of the immediate previous FY."
Summary
of the Companies act 2013 significant changes in the composition of the board
of directors.
A.
Every Company is required to appoint 1
(one) Resident Director on its board.
B.
Nominee director shall no longer be
treated as independent directors.
C.
Listed companies and Specified Classes
of public companies are required to appoint independent directors and women
directors on their boards.
D.
CA 2013 for the first time codifies the
duties of the directors.
E.
SEBI amends the listing agreement (with
prospective effect from October 01, 2014 to align it with CA 2013.
F. SEBI brought in new Regulations SEBI LODR 2015 w.e.f September 02, 2015 replacing various clauses including Clause 49 of erswhile Listing Agreement. Again these regulations were more or less same as given under Listing Agreement
F. SEBI brought in new Regulations SEBI LODR 2015 w.e.f September 02, 2015 replacing various clauses including Clause 49 of erswhile Listing Agreement. Again these regulations were more or less same as given under Listing Agreement
I. BOARD
COMPOSITION
Number
of Directors
The composition of the board:
Differences;
Companies Act 1956
|
Companies Act 2013
|
·
Companies Act 1956 permitted a company
to determine the maximum number of directors on its board by way of its
articles of association. Companies Act 1956 required public companies to
obtain Central Government's approval for increasing the number of its
directors above the limit prescribed in its articles or if such increase
would lead to the total number of directors on the board exceeding 12
(twelve) directors.
|
·
A company may have a maximum of 15 (fifteen) directors
Companies
Act 2013 however, permits every company to appoint directors above the
prescribed limit of 15 (fifteen) by authorizing such increase through a
special resolution.
Important
Point: Allowing companies to increase the maximum number of directors on
their boards by way of a special resolution would ensure greater flexibility
to companies.
|
Classes
of directors
RESIDENT DIRECTOR: Resident
Director is a new concept under Companies Act 2013.
Section
149 of Companies Act 2013 provides for the requirement of appointing a resident
director, i.e., a person who has stayed in India for a total period of not less
than 182 (one hundred and eighty two) days in the previous calendar year.
Important
Point: The requirement to have a resident director on the board of companies
has been viewed as a move to ensure that boards of Indian companies do not
comprise entirely of non-resident directors. This provision has caused
significant difficulties to companies, since it has been brought into force
with immediate effect, requiring companies to restructure their boards
immediately to ensure compliance with Companies Act 2013.
To
know more about the Independent Directors, please check the link below;
What is important to keep checking that
your company has Good Corporate Governance Practices?
-
Board Structure as given above
-
Disclosures and Reporting
o
Increased Disclosures and assertions in
Director’s Report (Risk Management, Internal Control, Legal Compliance, CSR,
etc.)
o
Compulsory Consolidation of Accounts,
summary of JVs, Subsidiaries
o
Disclosures for Public Money lying
unutilised
-
Risks, Control and Compliance
o
Implementation of Risk Policy
o
Systems to check all applicable laws
being followed or not
To know more, contact us at CSnehaseth@gmail.com or call us at 9871903449
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