Financial investors in India are scared of regulatory uncertainties. Not that uncertainties are exclusive to our country but it’s a critical risk factor that is assessed by those making substantial investments. Historically, one of the most important regulatory concerns for such investors is related to being categorised as ‘promoter’ of a listed company, both when the company is going public and also in cases where a private equity (PE) player intends to take a control position in an already listed company, by replacing its present promoters or by becoming co-promoters. Promoter liability theories have kept such investors away from taking control positions in listed companies. On the contrary, in the unlisted space where the promoter position is perceived differently, control deals are a way of life for certain PE funds in India.
National Head and Partner in the Capital Markets Practice at the Mumbai Office of Cyril Amarchand Mangaldas. An experienced practitioner in Indian securities law, Yash has been associated with a number of capital markets transactions including initial public offerings, follow-on offerings, QIPs, rights offerings, ADRs, GDRs and FCCBs. He can be reached at firstname.lastname@example.org
Over the years, companies have used employee stock option schemes (ESOP Schemes) as an effective method to align employee interests with shareholders, reward their efforts, increase their loyalty towards the company and motivate employees to perform better.
An initial public offering (IPO) and consequent listing of equity shares is one of the critical ways in which employees seek value appreciation in stock options and equity shares held by them. Accordingly, unlisted companies typically align timing of exercise of options under ESOP Schemes with their plans to undertake an IPO.
The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (SEBI ICDR Regulations), which regulates IPOs, provides exceptions for ESOPs from certain eligibility conditions to be fulfilled by the issuer undertaking the IPO as well as transfer restrictions on equity shares applicable after the completion of the IPO.
However, issuers have faced challenges in the past with respect to eligibility conditions if the options have remained outstanding with individuals who have ceased to be an employee of the issuer.
Further, issuers are being increasingly questioned by such former employees, who continue to hold shares in the issuer but are not offered lock-in exemptions available to existing employees. Additional basis to these concerns is that former employees are treated beneficially under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (ESOP Regulations) and the Companies Act, 2013 and similar benefits have not been recognised under the SEBI ICDR Regulations.
The Securities Exchange Board of India (SEBI) has, over the years, undertaken initiatives to align reporting and disclosure requirements for listed companies in India with global standards, including alignment with the principles prescribed by the International Organization of Securities Commissions. On February 6, 2017, SEBI issued a circular on Integrated Reporting by Listed Entities (SEBI Circular) to strengthen disclosure standards of listed Indian companies.
What is Integrated Reporting?
Integrated reporting is a principle-based reporting framework that was developed by the IIRC. Companies in various countries globally including Japan, the United Kingdom and Australia have adopted integrated reporting.
The primary purpose of an Integrated Report is to provide stakeholders with details in relation to the following: (i) functioning of an organisation; (ii) the value created by an organisation over time; and (iii) various external factors that affect the organisation. The Framework sets out certain fundamental concepts and guiding principles that should be considered while preparing an Integrated Report.