Unlisted companies to see significant reduction in compliance burden from FY22


The compliance burden on unlisted Indian companies is set to get lighter as the government relaxed the rules governing such firms which are listed overseas or have listed debt securities.

In an amendment to the Companies (Specification of definitions details) Rules on Friday, the ministry of corporate affairs (MCA) allowed certain classes of unlisted companies with listed debt securities or that are listed overseas in specified jurisdictions to not be considered as listed entities under the Companies Act.

These include public unlisted companies which have listed non-convertible debt securities or non-convertible redeemable preference shares issued on a private placement basis in terms of Securities and Exchange Board of India (Sebi) regulations.

The changes, which come into effect from April 1, will also be applicable to private unlisted firms with listed non-convertible debt securities on private placement basis in terms of Sebi rules and public unlisted companies with listed equity shares in specified foreign jurisdictions.

Along with various disclosures and compliances mandated by stock exchanges for listed companies, such firms are also required to make additional filings and other compliances with the Companies Act.

Aimed at improving the ease of doing business, the changes are expected to significantly reduce the number of compliances for small firms.

The move will benefit an even larger number of such companies when seen in conjunction with the Budget announcement by finance minister Nirmala Sitharaman to expand the definition of small companies.

Thresholds of the definition of a small company now stand at those with paid up share capital of up to Rs 2 crore, from Rs 50 lakh earlier, and with turnover of up to Rs 20 crore, up from Rs 2 crore before.

Previous amendments to the Companies Act, included enabling provisions for firms to directly list shares and securities in permitted foreign jurisdictions.

The latest changes to the rules will benefit such firms that plan on listing overseas, as and when the government finalises the norms to go along with it.

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