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SEBI Amended AIFs, Added Start-up Definition; Mandated Dividend Distribution Policy for Top 1,000 Listed Companies

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Sebi amends AIF norms, provides start-up definitionSecurities and Exchange Board of India (SEBI) has amended the Alternative Investment Funds (AIF) norms called SEBI (AIFs) (Second Amendment) Regulations, 2021 on May 2021 to add – definition of Start-up for the investment by Angel Funds and regulations over the AIFs.

Amendments over the AIFs:

Definition of Start-up: It means a private limited company or a limited liability partnership which fulfils the criteria for a startup as specified by the Department of Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India.

Exisitng Regulation Amended Regulation
Definition of Venture capital(VC) undertaking:

It means a domestic company, which is engaged in the business for providing services, production or manufacture of things and it prohibited sectors such as non-banking financial companies(NBF), gold financing, and activities not permitted under the industrial policy of Government of India.

Definition of VC undertaking:

It means a domestic company that is not listed on a recognised stock exchange at the time of making investments

Note – (Now the list of restricted activities or sectors from the definition are removed)

Category I and II AIFs investmen is capped at 25 percent in 1 Investee Company Category I and II of AIFs investment is capped at 25 percent in an investee company directly or through investment in the units of other AIFs

Note (Rules have been broadened to include indirect holding through another AIF)

Category III AIFs should not invest more than 10 percent in an Investee Company Category III of AIFs should not invest more than 10 percent in an Investee Company directly or through investment in units of other AIFs
Angel funds shall invest in “venture capital undertakings” Angel funds shall invest in “startups”

SEBI has also stated the scope of responsibilities of managers and members of investment committees, and prescribed a code of conduct for AIF, trustee and directors of the trustee/directors of the AIF, manager, members of the investment committee and key management personnel of AIF and manager.

Click here to read the entire amendment

SEBI Mandated Dividend Distribution Policy for Top 1,000 Listed Companies:

To strengthen the corporate governance practices and disclosure requirements, SEBI has made it must for the top 1,000 listed firms to formulate a dividend distribution policy(DDP).

  • The requirement for disclosure(s) of audio/ video recordings and transcript will be voluntary with effect from April 1, 2021 and mandatory with effect from April 1, 2022.

Key points:

i.It included the framework regarding the Risk Management Committee’s (RMC) constitution, applicability, and role.

ii.Extended the requirement for formulation of DDP and RMC from top 500 listed to the top 1,000 listed entities on the basis of market capitalisation.

iii.Eased the norms for re-classification of a promoter as a public shareholder.

iv.RMC’s meetings should be conducted on a continuous basis not more than 180 days.The RMC need to have minimum three members with majority of them being members of the board of directors, including at least one independent director.

v.SEBI has reduced the time gap between the date of board meeting and shareholders’ meeting for consideration of reclassification request to a minimum of 1 month and a maximum of 3 months. (Existing – minimum 3 months and maximum of 6months)

Recent Related News:

SEBI has issued guidelines for preparing warehousing norms by Clearing Corporations(CCs) for agricultural/agro-processed goods and non-agricultural goods (base and industrial metals). The guidelines would come into effect from June 1, 2021.

On April 06,2021, Securities and Exchange Board of India (SEBI) modified its framework relating to the guidelines on contribution to set up Limited Purpose Clearing Corporation (LPCC) by Asset Management Companies (AMCs) of Mutual Funds(MFs).

About Securities and Exchange Board of India (SEBI):

Establishment – On April 12, 1992, in accordance with the SEBI Act, 1992.
Headquarters – Mumbai, Maharashtra
Chairman – Ajay Tyagi