Corporate Governance
This domain tests board structures, committee composition, related party transactions and the governance code for listed companies. Questions often present a board or a transaction and ask whether the company complies.
Board and committees
- Independent directors: Companies Act, 2013 and LODR; maximum two terms of five years, with a three-year cooling-off.
- Audit committee: at least three members, two-thirds independent, chair independent.
- Nomination and remuneration committee: at least three non-executive directors, at least two-thirds independent.
- Stakeholders relationship committee; risk management committee for larger listed companies.
- Woman director and separate meeting of independent directors.
Related party transactions
- Audit committee approval before the transaction.
- Material RPT requires prior shareholder approval by ordinary resolution; promoter-related parties abstain.
- Materiality: lower of ₹1,000 crore or 10% of annual consolidated turnover.
- Material subsidiary: 20% of consolidated income or net worth.
Worked example
A listed company has consolidated turnover of ₹4,000 crore. The material RPT threshold is the lower of ₹1,000 crore and 10% of ₹4,000 crore (₹400 crore), so ₹400 crore. A proposed transaction of ₹450 crore is material. It needs audit committee approval and prior shareholder approval, with the related party abstaining. A ₹350 crore transaction is not material on this test but still needs audit committee approval.
Traps
- Assuming every RPT needs shareholder approval; only material ones do.
- Treating an independent director's first term as extendable without fresh approval.
- Using standalone turnover instead of consolidated turnover for materiality.
- Ignoring promoter group entities when identifying related parties.