1. What are the most common types of corporate business entity and what are the main structural differences between them?

The most common types of corporate business entity structures in India which are well regulated include publicly listed companies, public companies, private companies, one person companies (OPCs) and limited liability partnerships (LLPs). The other prevalent business entity structures in India are partnership firms (registered/unregistered) and sole proprietorships. While companies and LLPs typically provide for a limited liability of their economic owners, partnership firms and sole proprietorships do not.

Companies in India are generally governed by the Companies Act, 2013 and the rules framed thereunder (‘Company Law’). Further, listed companies in India are also regulated by the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’) and other rules and regulations issued by the Securities and Exchange Board of India (‘SEBI’), as applicable, that set out structural differences which inter alia include the applicable regulatory and compliance framework, requirement of capital and number of minimum and maximum directors/partners in the concerned entity.

2. What are the current key topical legal issues, developments, trends and challenges in corporate governance in this jurisdiction?

(a) The Company Law and LODR Regulations have comprehensive provisions in respect to corporate governance including setting out audit guidelines for conducting internal and external audits, the Companies (Auditor’s Report) Order, 2020 (CARO Order), the need for auditor’s views and comments on specific matters such as use of an accounting software by a company for maintaining its books of accounts which has a feature of recording audit trail (edit log) facility, whether the same has been operated throughout the year for all transactions recorded in the software, whether the audit trail feature has been tampered with or not and that the audit trail has been preserved by the company as per the statutory requirements for record retention. Additionally, there are provisions in respect to setting up of committees in a company such as the audit committee, risk management committee, corporate social responsibility committee, nomination and remuneration committee and a stakeholders relationship committee, as applicable.

(b) As per the provisions of the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (‘NDI Rules’) and Company Law, specified entities located in a country which share land boundary with India or the beneficial owner of an investment into India who is situated in or is a citizen of any such country, can only invest after prior Government approval.

(c) SEBI has also mandated Foreign Portfolio Investors (FPIs) holding more than 50% (fifty per cent) of their Indian equity assets under management (AUM) in a single corporate group or FPIs who individually or along with an investor group hold more than over Rs 25,000/- Crores (Rupees Twenty-Five Thousand Crores) of equity AUM in the Indian markets, to disclose granular details of all entities holding any ownership interest, economic interest or exercising control in such FPIs.

(d) The LODR Regulations set out critical provisions with respect to disclosures required to be made by listed companies in India, including intimation of material events/information, conflict of interest and related party transactions at arm’s-length basis within a specified period of the occurrence of such event(s) to the relevant stock exchanges, formulating an effective vigil mechanism/whistle-blower policy for directors and employees to report genuine concerns, restriction on communication while in possession of unpublished price sensitive information (UPSI) and maintenance of chinese walls, to name a few.

This article was originally published in The Legal 500  on March 2024 Co-written by: Dr. Shardul S. Shroff, Executive Chairman; Radhika M Dudhat, Partner; Priya Subbaraman, Senior Advisor; Priyanka Sheth, Counsel; Vishnu Sumanth, Associate; Dhwani Baxi, Associate. Click here for original article

Disclaimer

This is intended for general information purposes only. The views and opinions expressed in this article are those of the author/authors and does not necessarily reflect the views of the firm.