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Royalty payment in excess of 5% requires shareholder nod: SEBI

Our Bureau Mumbai | Updated on June 27, 2019 Published on June 27, 2019

Regulator also clears new norms for differential voting rights

In a move that could mainly benefit multinational corporations (MNCs) operating in India, SEBI has said that royalty payments linked to brand usage or such matter will require shareholder approval if it crosses 5 per cent of annual consolidated turnover of a listed entity. Earlier the threshold was 2 per cent.

But big MNCs such as Maruti Suzuki, General Electric, T&D India, and Hitachi Air Conditioner would largely remain unaffected as they take home 20 per cent of the domestic company’s pre-tax profits. These companies are accustomed to seek shareholder approval for their royalty every year.

Yet there are several other companies that would benefit. Data from Capitaline show, as a share of their net sales, royalties at 3 per cent in 2017-18 stood at ₹7,565 crore.

In a separate move, SEBI cleared new norms for differential voting rights (DVRs) to allow listing of firms having some shareholders with superior voting right shares. This will benefit tech companies and start-ups with asset-light business models. Promoters of start-ups are key to such company’s success and may be required to retain control. According to SEBI norms they can come out with a public issue and keep shares with superior voting rights with themselves.

SEBI said superior rights (SR) shares can be held for five years since the date of listing, with an extension of another five years through a resolution. The SR shares can have voting rights in the ratio of minimum 2:1 and a maximum of 10:1. SR equity shares will be treated as regular shares post IPO, if it exceeds 20 per cent of the total share capital or 50 per cent of the promoter stake.

Other conditions under which SR shares would be treated as common share include appointment or removal of an independent director or auditor or when the promoter willingly transfers control to another entity or in case of a third-party transaction and in case of special resolution for delisting or buyback of shares.

On closure of trading window with regard to insider-trading norms, SEBI said the window closure will be applicable from the end of every quarter till 48 hours after deceleration of financial results.

The trading window is a specific period during which dealing in the equity shares of the company and its transfer is allowed by a company mainly for its promoters and employees. According to SEBI’s prohibition of insider-trading norms, trading window should remain closed when the UPSI is generated and 24 hours after it is published.

The UPSI could come from any corporate announcement that the company could be planning to make or specifically during announcement of its financial results every quarter. So far, it was the company which decided when its ‘trading window’ could close.

Published on June 27, 2019
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