Government eases compliance burden on unlisted companies

NEW DELHI: In a significant change in rules, the government has eased the burden on unlisted Indian companies from compliance requirements under the Companies Act if their debt instruments are listed on exchanges or they are listed overseas.
On Friday, the ministry of corporate affairs (MCA) reworked the Companies (Specification of Definition Details) Rules to mandate that unlisted public companies with nonconvertible debt securities issued on private placement basis or non-convertible redeemable preference shares issued on private placement basis, in line with Sebi norms, will not be treated as listed entities.
This will also be the case for private companies that have listed their non-convertible debt securities on private placement basis on stock exchanges, or companies which are not listed in India but are listed overseas on specified jurisdictions.

The last category of companies will include several startups that intend to list overseas once the government issues the final guidelines in the coming months. “It’s an enabling provision at the moment,” said a source.
Listing comes with its own set of disclosure and compliance requirements for companies that are mandated by stock exchanges, along with additional filing and other requirements under the Companies Act. “The move has been in the pipeline for the last few months and it follows the recent amendments to the law. It will benefit several small companies, which had to undertake several obligations,” a company secretary said, adding that it will be more beneficial to private companies. Private companies are those where transfer of shares is restricted and can have up to 200 members.
For the smaller private companies the benefit could extend to audit committees, appointment of compliance officers and independent directors, apart from reporting requirements, she said.
Currently, independent directors of listed companies can account for one-third or even half the board, according to Sebi guidelines. “The idea is to ease the burden for companies and these changes are another set of measures in that direction,” said a government source. Last year, the government had amended the Companies Act to allow decriminalisation of several offences, apart from ushering in other changes.
In the Budget too, the definition of small companies has been changed to reduce the compliance burden.

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