prpri Govt may introduce Governance code for unlisted companies Govt may introduce Governance code for unlisted companies

The Ministry of Corporate Affairs is all set to introduce a governance code for unlisted companies on the lines of the one for listed firms to encourage more companies to register on the stock exchanges. Elaborate disclosures and compliance with governance code is seen as one big reason why many companies do not want to raise public funds and list on exchanges.
“The proposed Companies Bill, 2009, (now pending with the parliamentary standing committee), may see unlisted entities being asked to follow specific norms of governance, similar to market regulator Sebi’s code on corporate governance for listed companies,” senior officials in the ministry, who did not wish to be named, told ET..

Once the listed and unlisted companies are brought on par in terms of regulatory requirements more companies would want to list.

“Since unlisted companies, at present, have to only follow provisions under the Companies Act that are much less stringent compared to those prescribed by Sebi, many prefer to stay unlisted, the official added.

The government is also talking to the capital markets regulator Sebi to work out ways to reduce compliance costs for meeting mandatory requirements for getting listed.

“Once unlisted companies, too, are brought into the ambit of a governance code similar to the one existing for listed companies, the incentive for staying unlisted would go away,” the official said.

Minister for corporate affairs Salman Khurshid had recently hinted on the possibility of introducing norms that will remove the regulatory loopholes, which unlisted firms tend to use.

Data shared by the ministry showed that out of over seven lakh companies in the country, only 6,000 are listed on the NSE and/or the BSE.

“We are conscious that cost of compliance should not become prohibitive for companies (from getting themselves listed),” Mr Khurshid had said recently.

Compliance costs for listed entities, includes expenses for carrying out legal formalities, communicating quarterly and annual financial results to stockholders, preparing annual reports and sending them to shareholders, listing fee to the exchanges, and reporting board decisions to the exchanges.

Encouraging corporates to get themselves listed on the stock exchanges has been a priority for the government.

Recently, Sebi relaxed the listing norms for small and medium enterprises (SMEs), including measures that will reduce compliance costs. SMEs have, for instance, been exempted from the quarterly preparation and presentation of financial results to keep their compliance costs low.

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August 2021