Comprehending Board and Committee Composition in Accordance with Companies Act 2013 and SEBI Regulations

Comprehending Board and Committee Composition in Accordance with Companies Act 2013 and SEBI Regulations

The structure and composition of a company’s board and committees play a pivotal role in its governance and decision-making processes. This article delves into the intricacies of board and committee composition as outlined by the Companies Act of 2013 and the regulations set forth by the Securities and Exchange Board of India (SEBI). By adhering to these guidelines, companies can foster transparency, accountability, and effective corporate governance practices.

Understanding Board and Committee Composition:

Board and committee composition encompasses the organizational framework and constituent elements of a company’s board of directors and various committees facilitating governance and legislative procedures. This includes determining the appropriate number of directors, their requisite qualifications, delineation of duties and responsibilities, and the establishment of specialized committees such as audit, nomination and remuneration, and risk management committees.

Board Composition as per Companies Act 2013:

In compliance with the Companies Act 2013, public traded companies must ensure that at least one-third of their board comprises independent directors. Additionally, specific criteria mandate a minimum of two independent directors for companies meeting certain financial thresholds in terms of paid-up share capital, turnover, and outstanding deposits, loans, and debentures.

Board Composition as per SEBI LODR Regulation, 2015:

SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulation, 2015 prescribe certain criteria for board composition among listed entities. These include the inclusion of at least one female director, a majority of non-executive directors, and a requisite proportion of independent directors, particularly if the chairman holds an executive position. Shareholder approval is mandated for new board appointments, with periodic re-evaluations every five years.

Composition of Audit Committee:

Both the Companies Act 2013 and SEBI LODR Regulation, 2015 mandate the establishment of audit committees for eligible companies, comprising primarily independent directors. Financial literacy among committee members, particularly the chairperson, is emphasized to ensure effective oversight of financial matters.

Composition of Nomination & Remuneration Committee:

Listed companies are required to constitute nomination and remuneration committees, with a significant representation of independent directors. SEBI regulations stipulate that the committee must solely comprise non-executive directors, with an independent director serving as chairperson.

Composition of Stakeholder Relationship Committee:

The establishment of stakeholder relationship committees is mandatory for corporations with a substantial shareholder base. SEBI regulations specify the composition requirements, including the appointment of a non-executive director as chairperson and the inclusion of independent directors.

Composition of Risk Management Committee:

SEBI’s LODR Regulation, 2015 necessitates the formation of risk management committees by the board of directors, predominantly comprising board members, including independent directors. The committee’s composition must align with specified criteria, particularly for publicly traded companies with outstanding shares of SR stock.

Key Takeaways:

Adhering to the prescribed regulations regarding board and committee composition is integral to fostering robust corporate governance practices. Compliance with the Companies Act 2013 and SEBI regulations enables companies to enhance transparency, accountability, and decision-making processes, ultimately serving the interests of shareholders and stakeholders alike.

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