{"id":22365,"date":"2023-04-24T12:36:43","date_gmt":"2023-04-24T07:06:43","guid":{"rendered":"https:\/\/gstguntur.com\/?p=22365"},"modified":"2023-04-24T12:36:43","modified_gmt":"2023-04-24T07:06:43","slug":"preparing-a-company-for-an-ipo-and-governance-requirements","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/preparing-a-company-for-an-ipo-and-governance-requirements\/","title":{"rendered":"Preparing a Company for an IPO and Governance Requirements – CS Professional Study Material"},"content":{"rendered":"

Chapter 15 Preparing a Company for an IPO and Governance Requirements – Corporate Funding and Listing in Stock Exchange ICSI Study Material<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Preparing a Company for an IPO and Governance Requirements – Corporate Funding & Listing in Stock Exchange Study Material<\/h2>\n

Question 1.
\nWrite a note on the following:
\nDocuments to be checked in due diligence process (Dec 2012, 4 marks)
\nAnswer:
\nThe following are the few types of information or documents to be checked, during the process of due diligence:<\/p>\n

    \n
  1. Basic Information<\/li>\n
  2. Important Business Agreements<\/li>\n
  3. Financial Data<\/li>\n
  4. Marketing Information<\/li>\n
  5. Litigation Aspects<\/li>\n
  6. IPR Details<\/li>\n
  7. Taxation aspects<\/li>\n
  8. Internal control system<\/li>\n
  9. Human resources aspects<\/li>\n
  10. Insurance coverage<\/li>\n
  11. Cultural aspects<\/li>\n
  12. Environmental impact<\/li>\n<\/ol>\n

    Question 2.
    \nWrite a note on the following:
    \nData room in due diligence [Old Syllabus] (Dec 2014, 4 marks)
    \nAnswer:
    \nA Data Room provides all important business documents\/information which may be on Financial, Regulatory, IPR, Marketing, Press report or any important material aspect pertaining to a business transaction. It provides for a common platform\/place where all records of important business information are kept for the review by a potential buyer after signing of a Non Disclosure Agreement (NDA). As data room discloses confidential data which is not available for public and may relate to business process, trade secret, technology information etc, the access to data room is made after signing of Non Disclosure Agreement.<\/p>\n

    Provisions are also made to mitigate the risks of data destruction or data stealing. For this purpose the restrictive provisions are made for entry, study, noting and exit from the data room. This includes physical checking of the persons conducting such study in the data room. Installing close circuit camera in the data room and monitoring the activity of the persons on time to time basis is a regular activity. It results in adequate expenditure and prior to that make proper budgeting is required.<\/p>\n

    Principles are also laid down for copying documents to clearly state about the nature of documents which could be copied in the data room. For this purpose also photocopiers and scanning machines are kept, electronic data similarly also monitored for which copies are required to be made.<\/p>\n

    \"Preparing<\/p>\n

    Question 3.
    \nWrite note on the following:
    \nProvisions relating to Communication or procurement of unpublished price sensitive information as per SEBI (Prohibition of Insider trading) Regulations, 2015. (June 2017, 4 marks)
    \nAnswer:
    \nRegulation 3 of SEBI (Prohibition of Insider Trading) Regulations, 2015 provides for prohibition on communication or procurement of unpublished price sensitive information with some exceptions. Following are important points in this regard:
    \n(I) Prohibition [Reg.3(1)& 3(2)]: No Person Shall<\/p>\n

    communicate, provide, or allow access to any unpublished price sensitive information or<\/p>\n

    procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed or proposed to be listed except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.<\/p>\n

    (II) Exception to Restrictions:
    \nHowever, above provisions shall not applicable to any unpublished price sensitive information which may be communicated, provided, allowed access to or procured, in connection with a transaction that would:<\/p>\n

    (a) entail an obligation to make an open offer under the takeover regulations or
    \n(b) not attract the obligation to make an open offer under the takeover regulations
    \n(c) Where the board of directors of the company is of informed opinion that the proposed transaction is in the best interests of the company and
    \n(d) the information that constitute unpublished price sensitive information is disseminated to be made generally available at least 2 trading days prior to the proposed transaction being effected in such form as the board of directors may determine.<\/p>\n

    Question 4.
    \nCritically examine and comment on the following.
    \nTypes of information that can be provided under a data room. [Old Syllabus] (June 2014, 4 marks)
    \nAnswer:
    \nTypes of information that can be provided under a data room<\/p>\n

      \n
    1. Financial documents such as Annual Reports, Financial Statements filed with regulatory authorities, cash flow statements, documentation with bankers etc.<\/li>\n
    2. Basic corporate documents such as certificate of incorporation, Memorandum and Articles of Association, Share-holding agreement, various types of registrations, documents on General and Board Meetings, insurance contracts etc.<\/li>\n
    3. HR information.<\/li>\n
    4. Equipment and information on operational aspects.<\/li>\n
    5. Information relating to sales, marketing etc.<\/li>\n
    6. Compliance related information.<\/li>\n
    7. Information published in media.<\/li>\n
    8. IPR details.<\/li>\n
    9. Information on litigation.<\/li>\n<\/ol>\n

      Question 5.
      \nSoha Ltd. wants to go for initial public offer. Ms. Pia, the Company Secretary of the company, has to advise to the management of the company about the conditions for making initial public offer. What should be Ms. Pia\u2019s advice? (June 2015, 5 marks)
      \nAnswer:
      \nEligibility requirements for an initial public offer (Regulation 6)<\/p>\n

      (1) An issuer shall be eligible to make an initial public offer only if:<\/p>\n

      (a) it has net tangible assets of at least \u20b9 3 crores, calculated on a restated and consolidated basis, in each of the preceding three full years (of twelve months each), of which not more than fifty percent, are held in monetary assets: Provided that if more than fifty percent, of the net tangible assets are held in monetary assets, the issuer has utilised or made firm commitments to utilise such excess monetary assets in its business or project;
      \nProvided further that the limit of fifty percent, on monetary assets shall not be applicable in case the initial public offer is made entirely through an offer for sale.
      \n(b) it has an average operating profit of at least \u20b9 15 crores, calculated on a restated and consolidated basis, during the preceding 3 years (of twelve months each), with operating profit in each of these preceding three years;
      \n(c) it has a net worth of at least \u20b9 1 crores in each of the preceding 3 full years (of twelve months each), calculated on a restated and consolidated basis;
      \n(d) if it has changed its name within the last one year, at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding one full year has been earned by it from the activity indicated by its new name.<\/p>\n

      (2) An issuer not satisfying the condition stipulated in sub-regulation (1) shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least seventy five percent, of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.<\/p>\n

      \"Preparing<\/p>\n

      Question 6.
      \nWeak Industries Ltd. is contemplating to sell its business to Expensive Enterprises Ltd. (EEL). As a Practising Company Secretary, EEL has engaged you to create a \u2018data room\u2019 and take further steps. Explain to the management of EEL:
      \n(i) What is data room;
      \n(ii) What benefits it will provide; and
      \n(iii) In what circumstances creation of data room will be required? (Dec 2016, 8 marks)
      \nAnswer:
      \n(ii) Benefits of Data Room:<\/p>\n

        \n
      1. Removes ambiguity in the minds of buyer about the profitability, growth prospectus, and sustainability of business that is proposed to be bought.<\/li>\n
      2. Provides material information that helps in doing a SWOT analysis.<\/li>\n
      3. It enables the buyer to do a better bargain through the analysis of the data.<\/li>\n
      4. May expose the weakness of the seller which is not directly provided to the buyer. For example, a material off balance sheet transaction.<\/li>\n
      5. Provides data that helps in better Valuation of business for both buyer and seller.<\/li>\n<\/ol>\n

        (iii) Circumstances under which creation of data room is required:<\/p>\n

          \n
        1. Mergers, Amalgamations and Acquisitions,<\/li>\n
        2. Strategic Alliances,<\/li>\n
        3. Partnering agreement,<\/li>\n
        4. Business Coalitions,<\/li>\n
        5. Outsourcing agreement,<\/li>\n
        6. Technology or Product Licensing,<\/li>\n
        7. Joint Ventures through technical or financial collaboration,<\/li>\n
        8. Venture Capital investment,<\/li>\n
        9. Public Issue.<\/li>\n<\/ol>\n

          Question 7.
          \n\u201cInformation dissemination through website assumes significance particularly in respect of listed companies\u201d. Discuss and explain the statutory disclosures on company\u2019s website. (June 2019, 5 marks)
          \nAnswer:
          \nAs per Regulation 46 of the SEBI Listing Regulations 2015, every website of a listed Company must contain statutory disclosures in terms of the SEBI s Listing Regulations under a separate Section on its website which are enumerated as follows :<\/p>\n

          (a) details of its business;
          \n(b) terms and conditions of appointment of independent directors;
          \n(c) Composition of various committees of board of directors;
          \n(d) code of conduct of board of directors and senior management personnel;
          \n(e) details of establishment of vigil mechanism\/Whistle Blower policy;
          \n(f) criteria of making payments to non-executive directors, if the same has not been disclosed in annual report;
          \n(g) policy on dealing with related party transactions;
          \n(h) policy for determining \u2018material\u2019 subsidiaries;
          \n(i) details of familiarization programmes imparted to independent directors including the following details:<\/p>\n

            \n
          1. number of programmes attended by independent directors (during the year and on a cumulative basis till date),<\/li>\n
          2. number of hours spent by independent directors in such programmes (during the year and on cumulative basis till date), and<\/li>\n
          3. other relevant.details<\/li>\n<\/ol>\n

            (j) the email address for grievance redressal and other relevant details;
            \n(k) contact information of the designated officials of the listed entity who are responsible for assisting and handling investor grievances;
            \n(l) financial information including :<\/p>\n

              \n
            1. notice of meeting of the board of directors where financial results shall be discussed;<\/li>\n
            2. financial results, on conclusion of the meeting of the board of directors where the financial results were approved;<\/li>\n
            3. complete copy of the annual report including balance sheet, profit and loss account, directors report, corporate governance report etc.;<\/li>\n<\/ol>\n

              (m) shareholding pattern;
              \n(n) details of agreements entered into with the media companies and\/or their associates, etc,;
              \n(o) schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or institutional investors.
              \n(p) new name and the old name of the listed entity for a continuous period of one year, from the date of the last name change;
              \n(q) items in sub-regulation (1) of Regulation 47;
              \n(r) with effect from October 1, 2018, all credit ratings obtained by the entity for all its outstanding instruments, updated immediately as and when there is any revision in any of the ratings.
              \n(s) separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year, uploaded at least 21 days prior to the date of the annual general meeting which has been called to inter alia consider accounts of that financial year.<\/p>\n

              Question 8.
              \nIPO being \u201conce a life time event, mis-calculation of any nature can create a hurdle for company\u2019s future growth\u201d.
              \nKeeping this in mind list out the important aspects that key Managerial Personnel shall consider while preparing for an IPO. (June 2019, 5 marks)
              \nAnswer:
              \nCompany Secretary being Key Managerial Person under the Companies Act, 2013 is an important personnel as far as compliance of various legislation is concerned. Company Secretary assumes a significant importance when he\/she is required to be a part of the Company which proposes to attain \u2018listed\u2019 status. Besides complying with provisions of the Companies Act, a Company Secretary of an IPO bound Company is required to be aware and well versed with atleast fundamental requirements as far as preparation for IPO as well as continuation of being listed is concerned. The Key Managerial Personnel\/Management shall consider the following measures while preparing for an IPO issue:<\/p>\n

                \n
              • Due Diligence<\/li>\n
              • Setting up of Relevant Teams<\/li>\n
              • Management Structure<\/li>\n
              • Data Room<\/li>\n
              • Financial Information and Reporting process<\/li>\n
              • Other Regulatory Compliances<\/li>\n
              • Industry data<\/li>\n
              • Management Discussion and Analysis<\/li>\n
              • Publicity and Advertising<\/li>\n
              • Road shows<\/li>\n
              • Material contracts and Documents<\/li>\n<\/ul>\n

                Question 9.
                \nFor listing and trading of SME \u2014 Initial Public Offer (IPO), what are the documents to be submitted by the Company Secretary on T + 2 days ? (June 2019, 5 marks)
                \nAnswer:
                \nListing and Trading of SME-lnitial Public Offer (IPO)
                \nDocuments to be submitted by the Company Secretary on T+2 days (i.e. within 2 working days from the closure of the issue):<\/p>\n

                  \n
                • All due diligence certificates filed with SEBI by Merchant bankers.<\/li>\n
                • List of authorized signatories along with their specimen signatures.<\/li>\n
                • Confirmation from Lead Managers that devolvement notices have been sent to underwriters (applicable if the issue has devolved).<\/li>\n
                • The company should inform that the dividend entitlement for the current year for all the existing shares including the shares issued in the public issue shall rank pari-passu.<\/li>\n
                • Confirmation from the company regarding the email ID for Investor Grievances as per Regulation 46 of SEBI (LODR), Regulations, 2015.<\/li>\n
                • Copies of all advertisements published in connection with the issue upto T+2 stage.<\/li>\n
                • Confirmation from the company stating that they have obtained authentication for SCORES from SEBI as per SEBI circular dated 13th April, 2012.<\/li>\n<\/ul>\n

                  \"Preparing<\/p>\n

                  Question 10.
                  \nPQR successfully completed its Initial Public Offer (IPO). List out the documents to be submitted on T+2 days for listing. (June 2019, 5 marks)
                  \nAnswer:
                  \nListing and Trading of SME-Initial Public Offer (IPO)
                  \nDocuments to be submitted on T+2 days for listing are as follows:<\/p>\n

                    \n
                  • All due diligence certificates filed with SEBI by merchant banker(s).<\/li>\n
                  • Observation Letter issued by SEBI pursuant to filing of draft offer document.<\/li>\n
                  • List of authorized signatories along with their specimen signatures.<\/li>\n
                  • Confirmation from Lead Managers that devolvement notices have been sent to underwriters (applicable if the issue has devolved).<\/li>\n
                  • Certificate from the BRLM(s) that the issue has received minimum subscription as specified under Regulation 45(1) of SEBI (ICDR) Regulations, 2018.<\/li>\n
                  • Confirmation from the company regarding the email ID for Investor Grievances as per Regulation 46 of SEBI (LODR), Regulations, 2015.<\/li>\n
                  • Copies of all advertisements published in connection with the issue upto T+1 stage.<\/li>\n
                  • Confirmation from the company stating that they have obtained authentication for SCORES from SEBI as per Regulation 13 of LODR, Regulations, 2015.<\/li>\n<\/ul>\n

                    Question 11.
                    \n\u201cIf going public is a complex process, being public is all the more complex as it assumes tremendous responsibilities on the managements and promoters of the company once listed\u201d – Comment on the statement and the responsibilities it imposes on the management in terms of procedures and compliances. (Dec 2019, 5 marks)
                    \nAnswer:
                    \nIf going public is a complex process, being public is all the more complex as it assumes tremendous responsibilities on the managements and promoters of the Company once listed. The reason being, that the new set of shareholders would have acquired the ownership in the Company and the management has more responsibility towards outside shareholders as well as Regulators. Further, being publicly listed ownership of shareholding can change any time without the knowledge of the prohnoters & Company.<\/p>\n

                    In fact once the Companies are listed, responsibility of the management towards the shareholders enhance manifold and managements shall continue to strive for maintaining good governance standards, implementing ethical business practices and continue to comply with applicable Regulations in a sustained manner.
                    \nSome of the important functions in the organization after listing can be enumerated as follows:<\/p>\n

                    Board Procedure:
                    \nOn listing, Companies will have additional responsibility of complying with various disclosure and other requirements as specified by SEBI (Listing Obligations and Disclosure Requirements), 2015 besides those required under Companies Act, 2013. The stock exchanges will have a standard list of compliances to be followed by listed Companies at predetermined schedules. Notice of every proposed Board meeting which is likely to consider any decision which is considered as \u201cprice sensitive\u201d, must be given in advance as prescribed. The outcome of the Board Meeting must be intimated to the stock exchanges within 30 minutes of conclusion of the Board Meeting.<\/p>\n

                    Every listed Company must have a qualified Company Secretary holding a certificate from ICSI who besides being Key Managerial Personnel as defined under Companies Act is also a designated \u2018Compliance Officer\u2019. The Board process should be such streamlined that the calendar of proposed dates of Board Meeting in the financial year is required to be prepared in advance and intimated. Provisions related to Corporate Governance becomes applicable to the listed company which includes the requirement of having independent directors and women directors. The exchanges have developed robust disclosure systems wherein even the time of dissemination of information is mentioned on the stock exchanges.<\/p>\n

                    Compliance Requirements:
                    \nThe listed Companies are required to comply with continuous listing norms and have to adhere to periodic disclosures to the stock exchanges. The listed Companies basically will have to comply (besides provisions of Companies Act 2013) with applicable requirements of: – SEBI (Listing Obligation & Disclosure Requirements) Regulations 2015 (Listing Regulations) – SEBI (SAST) Regulations 2011 (Takeover Regulations) – SEBI (Prohibition of Insider Trading) Regulations 2015 (Insider Trading Regulations) The stock exchanges have standard \u2018Compliance Calendar\u2019 to be followed by the Company Secretaries\/ Management of the listed Companies.<\/p>\n

                    Question 12.
                    \nExplain the Regulatory Framework for an IPO and Scope of Due Diligence. (Dec 2019, 5 marks)
                    \nAnswer:<\/p>\n

                      \n
                    • The Regulatory framework governing an IPO are :<\/li>\n
                    • Companies Act, 2013 and Rules made there under<\/li>\n
                    • SCRA, 1956<\/li>\n
                    • SCRR, 1957 specially Rule 19(2)(b) which deals with minimum number of shares to be offered to the public in an IPO.<\/li>\n
                    • SEBI(lssue of capital and Disclosure Requirements) Regulations, 2018<\/li>\n
                    • Circulars issued by SEBI from time to time governing IPO process such as timeframe within which an IPO should be completed, modes of making payments in an IPO, roles and responsibilities of various intermediaries involved in an IPO etc.<\/li>\n<\/ul>\n

                      The SEBI Regulations requires a Merchant Banker, amongst other things, to exercise due diligence, ensure proper care and exercise independent professional judgment. Further, it requires Merchant Banker to ensure that adequate disclosures are made to potential investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed investment decision.<\/p>\n

                      The SEBI Regulations requires Merchant Banker to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue matters. The ICDR Regulations require that Offer Documents should contain all material disclosures, which are true and adequate to enable prospective investors to take an informed decision.
                      \nFurthermore, the SEBI ICDR Regulations, 2018 require due diligence certificate to be issued by the Merchant Banker.<\/p>\n

                      Whilst the regulatory framework does not specifically define what constitutes due diligence, as a matter of practice, the objective of due diligence is to collect information about the issuer company that helps the Merchant Banker draft as well as assess disclosures that are made in the Offer Document.<\/p>\n

                      It is pertinent to understand that while the Merchant Banker continues to be responsible for due diligence, external expert assistance is necessary. Whilst under the applicable Code of Conduct, the Merchant Bankers are required to demonstrate that all reasonable steps were taken to exercise due diligence and ensure adequate disclosures were made to potential investors, they should have the flexibility regarding the manner in which the due diligence exercise is conducted as they may not possess the expertise with respect to certain aspects of due diligence, such as technical, legal and accounting matters.<\/p>\n

                      In terms of the ICDR Regulations, the Merchant Bankers are required to submit due diligence certificate to SEBI and the formats for such certificate have been provided in the ICDR Regulations. An examination of the format of the due diligence certificate provides clarity of expectations from the Merchant Bankers, to a certain extent, and can act as guiding principles for the diligence to be exercised.<\/p>\n

                      Question 13.
                      \nExplain the following:
                      \nContinual disclosures under Regulation 7(2) of (Prohibition of Insider Trading) Regulations 2015. ‘ (Dec 2020, 5 marks)
                      \nAnswer:
                      \nUnder Regulation 7(2) under (Prohibition of Insider Trading) Regulation 2015:
                      \nContinual Disclosures:<\/p>\n

                      (a) Every promoter, employee and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregate to a traded value in excess of 10 lakh rupees or such other value as may be specified.<\/p>\n

                      (b) Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of the receipt if disclosure or from becoming aware of such information.<\/p>\n

                      \"Preparing<\/p>\n

                      Question 14.
                      \nExplain the following:
                      \nStatutory disclosures on a company website in terms of Listing Regulations. (Dec 2020, 5 marks)
                      \nAnswer:
                      \nThis covers many Regulations under SEBI (LODR) Regulations, 2015 and therefore all such points if mentioned than marks may be given.<\/p>\n

                      Regulation 46 specifically provides that which information shall be uploaded on the website of the company points mentioned there if written by the student the same shall be considered and marks may be awarded.<\/p>\n

                      1. Financial information: Each company shall upload unaudited financial results for each quarter of the financial year and also the audited financial results for the financial year for past 3 years. Annual accounts of the subsidiary companies are also required to be uploaded. Annual reports of company for past 3 financial years also are required to be uploaded.
                      \n2. Shareholding Pattern
                      \n3. Policies: Listed companies shall disclose certain management policies on website of company such as:<\/p>\n

                        \n
                      • Code of conduct for board of directors and senior management.<\/li>\n
                      • Code of conduct in terms of insider trading regulations.<\/li>\n
                      • Code of practices and procedures for fair disclosure of unpublished price sensitive information.<\/li>\n
                      • Appointment letters to independent directors.<\/li>\n
                      • Familiarization program for independent directors.<\/li>\n
                      • Whistle blower policy.<\/li>\n
                      • Policy of related party transaction.<\/li>\n
                      • Material subsidiary policy.<\/li>\n
                      • Risk Management policy.<\/li>\n
                      • Archival policy.<\/li>\n
                      • Policy for disclosure of material information.<\/li>\n
                      • Internal financial control.<\/li>\n
                      • Dividend Policy.<\/li>\n
                      • Policy against sexual harassment.<\/li>\n<\/ul>\n

                        Question 15.
                        \nList out the standard material contracts to be attached with the copy of Offer Document delivered to ROC for an IPO. (Aug 2021, 5 marks)
                        \nAnswer:
                        \nUnder the SEBI Regulations as well as the provisions of the Companies Act, 2013, the copies of standard material contracts and documents for inspection are required to be attached to the copy of offer document delivered to ROC and said documents are also required to be made available for inspection at registered office of the Company from draft offer document stage till the closure of the IPO.<\/p>\n

                        The standard material contracts to be attached with copy of Offer Documents are as follows:<\/p>\n

                          \n
                        1. Offer\/Issue Agreement between Company, the Merchant Banker and Selling Shareholders (if any).<\/li>\n
                        2. Memorandum of Understanding or Agreement between Company and the Registrar to the Issue.<\/li>\n
                        3. Bankers to the Issue Agreement between Company, Merchant Banker and the Banker to the Issue.<\/li>\n
                        4. Underwriting Agreement between Company, Merchant Banker & other Underwriters (if any).<\/li>\n
                        5. Market making agreement between Company, the Lead Managers and the Marker to the Issue (If applicable).<\/li>\n
                        6. Syndicate Agreement between Companies, Merchant Banker & Syndicate Members.<\/li>\n
                        7. Copy of Tripartite agreement entered into between Company, CDSL and the Registrar to the Issue.<\/li>\n
                        8. Copy of Tripartite agreement entered into between Company, NSDL and the Registrar to the Issue.<\/li>\n<\/ol>\n

                          Question 16.
                          \nExplain the procedure of Due Diligence as expected to be carried by a Merchant Banker for an IPO. (Aug 2021, 5 marks)
                          \nAnswer:
                          \nThe SEBI Regulations requires a Merchant Banker, amongst other things, to exercise due diligence, ensure proper care and exercise independent professional judgment. The SEBI Regulations provides that Merchant Banker to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue matters. Furthermore, the SEBI (ICDR) Regulations, 2018 require due diligence certificate to be issued by the Merchant Banker.<\/p>\n

                          A Merchant Banker for an IPO is expected to:<\/p>\n

                          (i) carry out the procedures to demonstrate that it had no reasonable ground to believe and did not believe that there were material misstatements or omissions in the Offer Documents which could have had an impact on an investment decision;<\/p>\n

                          (ii) have detailed discussions with the management and key customers, suppliers (where practicable) and the Issuer’s auditors with respect to the business and associated risks and financial reporting statements;<\/p>\n

                          (iii) identify procedures such that disclosures in the Offer Document that are material to an investment decision are backed by appropriate documentation, such as corporate and secretarial records or certificates of the Issuer or third parties and independent third party reports; and<\/p>\n

                          (iv) inform the Issuer that it may be required to provide documents that have been reviewed for an Issue, post completion of the Issue in instances of receipt of clarifications or questions from the SEBI or other regulatory agencies or other persons.<\/p>\n

                          However, Merchant Bankers are supposed to carry out diligence and comply with all the requirements of applicable regulations, the Company and the Management is responsible for the contents of offer document and have to declare and certify that all the information in the offer document is true and fair.<\/p>\n

                          Offer document being a legal document defined under the Companies Act as well as applicable regulations, responsibility of the management is final. Companies need to prepare and be ready for the process of the diligence.<\/p>\n

                          \"Preparing<\/p>\n

                          Question 17.
                          \nDiscuss the various parameters to be covered for a successful Road Show for raising funds via an IPO. (Aug 2021, 5 marks)
                          \nAnswer:<\/p>\n

                          At road shows, generally series of information presentations are organised in selected cities around the world with analysts and potential institutional investors. It is, in fact, a conference by the issuer with the prospective investors.<\/p>\n

                            \n
                          • Road show is arranged by the lead manager by sending invitation to all prospective investors.<\/li>\n
                          • Management needs to prepare for proposed Road shows and Investor Meets in advance.<\/li>\n
                          • Adequate representation of promoters & key managerial person should be available for various meets, Road shows etc.<\/li>\n
                          • Often there is a need to undergo training for the representatives of the Company about their conduct & behaviour during these road shows.<\/li>\n<\/ul>\n

                            IPO bound Companies prepare a ‘Corporate Film’ which includes brief about the Company, its past and also take investors through the present set up, practices followed by the Company, overview of proposed expansion, brief information of management, financials of the Company including various financial ratios & parameters and basis of IPO price.<\/p>\n

                              \n
                            • Besides this a short and concise Press Note about the Company and its IPO is required to be released for publications.<\/li>\n
                            • The Road show generally comprises of a press meet and meeting with Brokers and Investors\/Analysts.<\/li>\n<\/ul>\n

                              Press Conference is aimed at giving information to the press for publication in their papers\/newspapers for dissemination of information to the investors whereas ‘Brokers, Investors\/Analysts Meet’ aims at giving detailed information to the market participants about the Company enabling them to understand the details and take it further to the ultimate investors.<\/p>\n

                                \n
                              • Many a times IPO bound Companies also organize site\/plant visit for the market participants enabling them to take a view of manufacturing facilities and other administrative set up of the Company.<\/li>\n
                              • Managements are required to take into consideration all the above factors while preparing for marketing of an IPO.<\/li>\n<\/ul>\n

                                Question 18.
                                \nEvery website of a listed Company must contain statutory disclosures in terms of listing regulations. In light of this, list out the various information\/policies which should be disseminated through the Company’s website. (Dec 2021, 5 marks)
                                \nAnswer:
                                \nThe website of a Company assumes great importance as it is medium of information about the Company.
                                \nThe managements are conscious regarding the contents provided in websites of the Companies as it is a true reflection of a company’s philosophy, business, history, background etc.<\/p>\n

                                Information dissemination through website assumes significance particularly in respect of listed companies as companies are under obligation to comply with various requirements as far as contents of the website is concerned.<\/p>\n

                                Various regulations prescribe certain requirements of disclosure on website.
                                \nEvery website of a listed company must contain statutory disclosures in terms of listing regulations which are enumerated as follows:<\/p>\n

                                A. Financial Information
                                \nEach company shall upload unaudited financial results for each quarter of the financial year and also the audited financial results for the financial year for past 3 years.
                                \nAnnual accounts of the subsidiary companies are also required to be uploaded. Annual reports of the company for past 3 financial years also are required to be uploaded.<\/p>\n

                                B. Policies
                                \nAs per Regulation 46 of the SEBI (LODR) Regulations, 2015 provides that listed entity shall also maintain functional website. Listed Companies shall disclose certain management policies on the website of the company such as:<\/p>\n

                                  \n
                                • Code of conduct for Board of Directors & Senior Management<\/li>\n
                                • Code of conduct in terms of Insider Trading Regulations<\/li>\n
                                • Code of practices & procedures for fair disclosures of unpublished price sensitive information<\/li>\n
                                • Composition of various committees & Board<\/li>\n
                                • Appointment letters to Independent Directors.<\/li>\n
                                • Familiarization programme for Independent Directors.<\/li>\n
                                • Whistle Blower Policy.<\/li>\n
                                • Policy on Related Party Transaction.<\/li>\n
                                • Material subsidiary policy.<\/li>\n
                                • Risk Management Policy.<\/li>\n
                                • Archival Policy.<\/li>\n
                                • Policy for disclosure of material information.<\/li>\n
                                • Internal Financial Control.<\/li>\n
                                • Shareholding pattern.<\/li>\n
                                • Dividend Policy (Top 1000 Companies with reference to Market Capitalisation).<\/li>\n
                                • Policy against sexual harassment.<\/li>\n<\/ul>\n

                                  C. Other Information<\/p>\n

                                    \n
                                  • Details of unclaimed dividend.<\/li>\n
                                  • Scrutinizers Report for the latest financial year.<\/li>\n
                                  • Details of compulsory transfer of shares to Investor Education and Protection Fund Suspense Account.<\/li>\n<\/ul>\n

                                    Question 19.
                                    \nBriefly describe the provisions with respect to the following as per SEBI (LODR) (Second Amendment) Regulations, 2021 :
                                    \n(a) Secretarial Audit and Secretarial Compliance Report
                                    \n(b) Compliance Certificate under Regulation 7(3). (June 2022, 5 marks)<\/p>\n

                                    Preparing a Company for an IPO and Governance Requirements Notes<\/strong><\/p>\n

                                    1. Preparing a Company for an IPO & Governance Requirements
                                    \nGoing public is certainly a very important milestone in the life of a Company. Initial Public Offer (IPO) happens only \u201conce in life cycle\u201d during corporate journey of the Company. It is a complex process. It is time consuming and may be expensive sometime. Some of the advantages of going public and attaining listing include ;<\/p>\n

                                    (i) Raising capTtal: Companies require funds to finance its needs for expansion\/growth, acquisitions & present business operations. IPO is one of the most important ways to access the capital market and raising required equity resources. IPO route is also utilized by existing investors such as Private Equity, Venture\/Angel Funds as well as promoters to exit from the company or dilute their stake by making an \u2018Offer for Sale\u2019 and benefits of listing are available to company and its stakeholders.<\/p>\n

                                    (ii) Currency for Mergers and Acquisitions: The established publicly traded Companies can use the equity shares as currency to acquire other business. Equity shares of listed Company can be utilized to swap & do a stock deal as a consideration.<\/p>\n

                                    (iii) Leveraging: Equity shares listed on Stock Exchanges command a price and liquidity which leads to enhanced market capitalization. Often promoters of the listed company can utilize their existing holding to raise further capital by pledging the equity shares or offering it as a security to the Bank and Financial Institutions to raise further money for growth.<\/p>\n

                                    (vi) Talent Acquisition and Management: Listed Companies can offer attractive Employee Stodk Option (ESOP) or Employee Share Purchase Schemes (ESPS) to attract required talent pool and also to retain them. Being listed, the ESOP\/ESPS may command good price gain and attraction to the employees. ESOP and ESPS are used to attract talent as well as to retain the key employees and managerial personnel which is an important human capital for business.<\/p>\n

                                    (v) Enhancing Brand Image: Listing a Company definitely enhances Company\u2019s image and its profile. Listed stocks get attention of large pool of investors and other stakeholders\/market participants which is helpful in creating and enhancing brand awareness.<\/p>\n

                                    2. Due Diligence – Regulatory framework and scope of due diligence
                                    \nThe SEBI Regulations requires a Merchant Banker, amongst other things, to exercise due diligence, ensure proper care and exercise independent professional judgment. Further, it requires Merchant Banker to ensure that adequate disclosures are made to potential investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed investment decision. The SEBI Regulations requires Merchant Banker to maintain records and documents pertaining to due diligence exercised in pre-issue and post-issue matters.<\/p>\n

                                    Whilst the regulatory framework does not specifically define what constitutes due diligence, as a matter of practice, the objective of due diligence is to collect information about the Issuer company that helps the Merchant Banker draft as well as assess disclosures that are made in the Offer Document. It is pertinent to understand that while the Merchant Banker continues to be responsible for due diligence, external expert assistance is necessary.<\/p>\n

                                    In terms of the ICDR Regulations, the Merchant Bankers are required to submit due diligence certificate to SEBI and the formats for such certificate have been provided in the ICDR Regulations. An examination of the format of the due diligence certificate provides clarity of expectations from the Merchant Bankers, to a certain extent, and can act as guiding principles for the diligence to be exercised.<\/p>\n

                                    3. Appraising the Board and other Functions in the Organisation Regarding the post IPO\/listing governance changes
                                    \nIf going public is a complex process, being public is all the more complex as it assumes tremendous responsibilities on the managements and promoters of the Company once listed. The reason being, that the new set of shareholders would have acquired the ownership in the Company and the management has more responsibility towards outside shareholders as well as Regulators.<\/p>\n

                                    Some of the important functions in the organization after listing can be enumerated as follows :<\/p>\n

                                    (i) Board Procedure: On listing, Companies will have additional responsibility of complying with various disclosure requirements of the stock exchanges besides those required under Companies Act, 2013. The stock exchanges will have a standard list of compliances to be followed by listed Companies at predetermined schedules. Notice of every proposed Board meeting which is likely to consider any decision which is considered as \u201cprice sensitive\u201d, must be given in advance as prescribed. The outcome of the Board Meeting must be intimated to the stock exchanges within 30 minutes of conclusion of the Board Meeting.<\/p>\n

                                    (ii) Compliance Requirements: The listed Companies are required to comply with continuous listing norms and have to adhere to periodic disclosures to the stock exchanges. The listed Companies basically will have to comply (besides provisions of Companies Act 2013) with applicable requirements of :<\/p>\n