SEBI Approves Shareholder Nod For Royalty Payments Above 5% Of Turnover
Companies making royalty payments exceeding 5 percent of consolidated turnover now need shareholder nod.
The market regulator approved revised norms that require listed companies to seek shareholders’ nod for royalty payments exceeding 5 percent of consolidated annual turnover.
The decision was approved in the board meeting of the Securities and Exchange Board of India, according to its statement. It covers royalty or brand usage payments to related parties.
The Uday Kotak-led committee on corporate governance had the suggested 5 percent threshold. But SEBI lowered it to 2 percent but deferred the rollout till June 30 after receiving representations from the industry. It has now brought it to the 5 percent level recommended by the panel.
Based on 2018 financials, 14 multinationals would need to seek shareholder approval for royalty payments if the threshold was at 2 percent of revenue, according to Hetal Dalal, chief operating officer at Institutional Investor Advisory Services. Under the increased threshold, only one company—3M India Ltd.—would need to take shareholder approval, she said.
JN Gupta, managing director at Stakeholder Empowerment Services, told BloombergQuint while the existing provision has been diluted, being a difficult issue it cannot be decided in one instance. “There are many pros and cons involved but at least something has been initiated.”
Shareholders per se may not oppose royalty as long they understand that benefits outweigh the cost, Gupta said. “Companies will have to be transparent in disclosing the pros and cons of royalty.”
For all other key takeaways from the SEBI board meet read: