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– Prapti Kanakia, Manager | prapti@vinodkothari.com
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As social stock exchanges seem imminent, auditors get ready with social audit standards
ICAI and ICSI issue social audit standards
– Sharon Pinto & Kaushal Shah (corplaw@vinodkothari.com)
Background
As we understand, the concept of Social Stock Exchanges (‘SSEs’) have been brought under the regulatory purview of Securities and Exchange Board of India (‘SEBI’) for listing and raising of capital by Social Enterprises, the details of which can be read in our article Social stock exchanges: philanthropy on the bourses as well as our other resources linked with the concept of SSEs and social sectors.
Social Enterprises are defined under regulation 292A (h) of the SEBI (ICDR) Regulations, 2018 (‘ICDR Regulations’) and are expected to be engaged in the specified activities provided therein. With the objective to assess the impact created by such social activities by the Social Enterprises, Self Regulatory Organisations (‘SRO’s) recognised under ICAI, ICSI and such other bodies as may be prescribed by SEBI have been considered to be eligible to act as platforms to register Social Auditors. ICAI has approved the formation of an SRO named ‘Institute of Social Auditors of India’ while ‘ICSI Institute of Social Auditors’ is the recognsied SRO under ICSI. Such auditors are also required to undergo a certification program conducted by National Institute of Securities Market (‘NISM’).
ICAI has recently sought interest for the initial empanelment of Social Auditors.[1] The eligibility criteria for empanelment as a Social Audit firm requires having a track record of minimum three years of conducting social impact assessment. Further, average annual grants or expenditure of social enterprise of the last 3 financial years should be atleast Rs. 50 lakhs and the firm should have suitable human resources in the field of social development having experience of usage of relevant methodology of social audit. The disqualifications includes any individual or any of the partner/director of an entity being convicted for an offence of moral turpitude or declared as an undischarged insolvent/bankrupt or has been debarred by SEBI.
To put it in simple terms, Social Auditors are required to conduct Social Audit of the activities carried on by Social Enterprises. To aid the Social Auditors in carrying out the Social Audit, both the SROs being ICAI and ICSI have rolled out the Social Audit Standards (‘SAS’) to assist and guide their empanelled auditors for the purpose of carrying out the audit in accordance with the SAS Framework. Looking at the imminence of SSEs to come into reality with SEBI granting in-principle approval to both BSE and NSE in December, 2022, SROs have rolled out SAS for the quick reference and guidance for their registered auditors.
In this write-up, we have covered the key takeaways from the SAS and its relevance, applicability as well as mapping with the global principles on social audit.
Read more →Annual Transparency Report by statutory auditors of Large public Interest Entities
– Burhanuddin Kholiya | corplaw@vinodkothari.com
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Read our more detailed discussion on the said topic here
2022 Wrapped Up: Regulatory review of corporate law developments
– Payal Agarwal, Assistant Manager (payal@vinodkothari.com)
2022 has been a relatively stable year when it comes to Companies Act, save changes in the forms and filing procedures with increasing online processes, there has been significant traction on the part of SEBI. While Structured Digital Database (SDD) remained the buzzword for the listed entities with the stock exchanges requiring them to submit quarterly compliance certificates, the stress for proper controls on insider trading remained the focal point. For social enterprises, a landmark development was the introduction of the concept of Social Stock Exchanges, which seems to be shortly getting into operational mode.
We have tried to briefly cover the major developments in corporate laws during the year 2022. You may also refer to our brief discussion of the same in this youtube video. For updates relevant to the financial sector including the overseas investment norms, refer 2022 in retrospect: Regulatory activity in the financial sector. You may also refer to our quick round-up of regulatory developments in IBC in the year 2022.
Read more →IPO draft documents may be kept away from public view until SEBI/stock exchange observations, Issuers may choose an opportune time for public view
Secondment contract as ‘services’: Supreme Court held under Indian taxation regime
– Neha Sinha, Assitant Legal Advisor | neha.sinha@vinodkothari.com
Background
Secondment of employees have become increasingly popular amongst corporate entities which enter into secondment arrangements to leverage the expert knowledge and specific skill sets. The seconded employees work on a deputation basis in the seconded companies they are seconded to which require their technical expertise on certain matters. Since the seconded employee works for the seconded company during the secondment period, a pertinent question arises on whether the seconded employee becomes an employee of the seconded company. If yes, then what are the likely implications in the context of service tax.
Read more →SEBI notifies amendments in LODR for NCS entities Scheme of Arrangement | Submission of financial results & line items | Transfer to IPEF for unclaimed NCS amounts by body corporate
Ajay Ramanathan, Executive |
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Read our related resources :
- SEBI LODR amendments: Minority say in independent directors, added regulations for debt issuersSEBI rationalizes ID appointment and removal process for first term Re-appointment process to be rationalized post amendment in CA, 2013
- SEBI rationalizes ID appointment and removal process for first term Re-appointment process to be rationalized post amendment in CA, 2013
SEBI further caps limit for ISINs to reduce fragmentation and boost liquidity
– Lovish Jain, Executive | lovish@vinodkothari.com
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Utilisation of accumulated surplus by section 8 companies
-Can surrogate means be used to relegate funds or benefits to shareholders
Pammy Jaiswal | Partner | Vinod Kothari and Company
Shraddha Shivani | Executive | Vinod Kothari and Company
Background
Section 8 of the Companies Act, 2013 (‘CA’) provides for the formation of companies with specific objects. Since the section revolves around incorporation of companies with charitable or some other specified welfare objectives, it gives an impression that these companies do not work to earn financial gains for their shareholders. This impression becomes evident since Section 8 companies are commonly referred to as ‘not-for-profit’ companies which further substantiates this understanding and adds to the confusion. They may make profits, as indeed, they very often do; however, the profit necessarily gets redeployed to carry the very same objects for which the company was formed, and cannot be relegated to the shareholders.
In fact, earning profits is not just permitted but is also essential for their continued existence and organic growth of its affairs. Most such companies do not borrow; hence, they carry their activities either through corpus contributions or through retained profits. Thus, the restrictions under CA are not on earning profits but on the distribution of the same to its shareholders.
The most common way for a company to distribute profits to its shareholders is by way of payment of dividend. This is explicitly barred in case of a Section 8 company. Having said that, these companies may also come across a situation where they do not foresee any immediate application of their accumulated profits and therefore, may look out for ways to utilise it for some other purpose. The management running these companies, potentially representing shareholders, may not be necessarily driven by avarice when they intend to use the funds other than for the purpose for which the company was formed.
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