The government will request a top advisory panel to look into the need for a special regulatory regime for large unlisted companies, a person aware of the plans said. The idea is to ensure closer oversight of businesses that have grown in size but enjoy a lighter regulatory regime since they remain in the class of unlisted private limited companies.
The company law committee, comprising experts including Uday Kotak, Shardul Shroff and T.K. Viswanathan, advises the ministry of corporate affairs on legislative matters. Earlier this month, the government extended its term by a year till September 2024.
The authorities will also examine the need for quarterly or biannual financial reporting by such entities, for which an enabling provision was introduced in the Companies Act in 2021; however, a detailed reporting framework has yet to be introduced. At present, quarterly reporting is mandatory for listed companies, while unlisted entities report annually.
The idea is to ensure large startups like edtech firm Byju’s, which are unlisted and therefore governed by a lighter regulatory framework under the Companies Act, do not remain away from the radar until it is too late.
“We wish to send many of the proposals we have received from stakeholders to the company law committee. A regulatory framework tailored for large unlisted companies could be one of the things that the committee could look into,” the person cited above said on condition of anonymity.
The person explained that in the case of listed companies, the Securities and Exchange Board of India (Sebi) has a fairly defined and rigorous regulatory regime. For unlisted private limited companies, the regulation is light-touch. “There could be some large unlisted companies which have systemic implications as well. So, the question is, should we have a more rigorous regime, at least in part, for such entities? This is a question that has come up after (developments around) Byju’s. This is one issue on which the company law committee can take a view,” the person said.
Emails sent to a spokespeople for the corporate affairs ministry and Byju’s on Monday seeking comments remained unanswered till press time.
The government believes the compliance burden should be low for small companies, but large unlisted companies may have the wherewithal to meet stricter requirements. The proposed regime is likely to apply only to those businesses that meet certain conditions.
Experts said threshold limits for complying with various company law-related requirements are set based on considerations like paid-up capital, profits and debt levels. These help determine the extent of public interest that calls for additional compliance. For small companies, the law anyway allows a special, liberal compliance regime.
Under the Companies Act, private limited companies have the least compliance requirements, followed by public limited companies, which have to be more open about their affairs. Private limited companies have to first get converted to public limited companies before getting listed on a stock exchange. Once listed, additional requirements by Sebi also apply to them.