Research and Articles

Demystifying AI Governance: A Guide for Boardroom Decision-Makers

The simulation of human intelligence processes by machines, particularly computer systems, is known as Artificial Intelligence (AI). Expert systems, natural language processing, speech recognition, and machine vision are a few specific uses of AI1. John McCarthy offers the definition of AI “It is the science and engineering of making intelligent machines, especially intelligent computer programs. It is related to the similar task of using computers to understand human intelligence, but AI does not have to confine itself to methods that are biologically observable”.

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Building Trust in Financial Reporting: NFRA's Role in Shaping the Future

In the intricate web of financial transactions that define the global economy, trust is an essential factor that holds it all together. Ensuring the accuracy, transparency, and reliability of financial information is paramount, and at the heart of this responsibility lies the National Financial Reporting Authority (NFRA). Tasked with overseeing the work of statutory auditors, the NFRA plays an important role in upholding the highest standards of professionalism, ethics, and quality in financial reporting.

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The Unseen Influencers: Shadow Directors

Directors are entrusted with a wide array of responsibilities and obligations towards their company and its shareholders. They may face personal liability, especially when the company violates or falls short of complying with its obligations. It is critical to understand who falls under the definition of a ‘director’ of a company. Identifying who qualifies as a ‘director’ goes beyond a simple examination of Ministry of Corporate Affairs records. This article aims to explore situations in which individuals not officially appointed as directors may still be deemed directors and, consequently, held liable for the responsibilities and obligations associated with directorship.

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Resilience and Reinstatement: Sam Altman Returns as OpenAI CEO Amid Board Overhaul

In a remarkable turn of events, Sam Altman, the co-founder and former CEO of OpenAI, is set to reclaim the helm of the artificial-intelligence start-up OpenAI that he helped establish. The five-day standoff between Altman and the board that initially fired him has come to a close, marking a victory for employees, shareholders, and other stakeholders who rallied behind the ousted CEO.

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OpenAI Saga: Candidness and Corporate Governance

Sam Altman, the co-founder and the Chief Executive Officer (‘CEO’) of OpenAI, the firm at the forefront of the artificial-intelligence (AI) revolution, was suddenly sacked by the company’s board, citing concerns over his lack of consistent candour in communications with the board. The decision seems to have been arrived at following a probe that revealed Altman had not been entirely forthright in his conversations with the directors, eroding confidence in his ability to effectively lead the organization. The alacrity with which this decision was taken by the board has reportedly even surprised some of the strategic shareholders of the company, who immediately stepped in for damage control. The board’s decision to remove Altman overnight, reflects the challenges and complexities that organizations face in balancing innovation, growth, and ethical considerations in the rapidly evolving field of AI.

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Government Issues New Sop for FDI Proposals

The Department for Promotion of Industry and Internal Trade (“DPIIT”) vide its circular dated August 17, 2023 has issued a new Standard Operating Procedure (“New SOP”)1 for processing foreign direct investment (“FDI”) proposals replacing the erstwhile standard operating procedure which was issued by the DPIIT vide its circular dated November 9, 2020 (“SOP 2020”)2. These standard operating procedures contain the process and procedure for filing and processing of FDI proposals, time limits and internal mechanisms for monitoring the processing of such proposals.

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Government Strengthens Beneficial Interest Disclosure Regime

As a part of Government’s consistent efforts towards enhancing and strengthening the level of transparency and disclosures in relation to beneficial interest holding in the business structures, recently on October 27, 2023, the Ministry of Corporate Affairs (“MCA”) issued 2 (two) key notifications namely, - the Limited Liability Partnership (Third Amendment) Rules, 2023 (“Amended LLP Rules”)1 and the Companies (Management and Administration) Second Amendment Rules, 2023 (“Amended MGT Rules”)2. Let us analyze the key changes of these amendments and their impact on Limited Liability Partnerships (“LLPs”) and the companies.

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MCA's Digital Leap: Dematerialization of Securities by Private Companies

On October 27, 2023, the Ministry of Corporate Affairs (“MCA”) introduced a significant amendment via the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 (“Amended PAS Rules”).1 The Amended PAS Rules encompass two pivotal changes: (i) surrendering share warrants issued by public companies prior to the commencement of the Companies Act, 2013 (the “Act”) and get the shares in dematerialized mode; and (ii) private companies, other than small companies2, to mandatorily issue the securities only in dematerialized form and facilitate the dematerialization of all its existing securities. It is pertinent to note that Amended PAS Rules refer to ‘securities’, which as defined under the Securities Contracts (Regulation) Act (“SCRA”)3, includes all types of instruments such as equity shares, preference shares, debentures, warrants, etc.

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Venture capitalism's evolution: The rising emphasis on startup governance

In the ever-evolving landscape of venture capitalism, one constant remains: pursuit of the next big thing. Venture capitalists (VCs) always seek the next disruptive innovation that promises to yield substantial returns on their investments. Yet, a new trend is emerging that is reshaping the way VCs approach their investments. It places equal emphasis on the groundbreaking technology or idea as well as on the governance structure of a startup. This evolving approach is changing the game and shaping the future of funding in the venture capital world.

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Crisis Management by the Board: Navigating Turbulent Waters

A quick look in the rear-view mirror is all it needs to show just how much India Inc. has evolved! From the India Inc. of the Satyam scam, where members of the Board of Directors had no idea about how the books were being cooked, the Board of Directors of India Inc. today is learning how to play an active and vibrant role in guiding their respective ships. They are embracing their roles and are not afraid to flex their muscles in the time of crisis, to ensure that the moral compass that guides them and their ships is not affected. To that end, preparation towards crisis management is critical.

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The Art of Collective Decision-Making: A Peek Inside the Boardroom

In the context of good governance, the boardroom stands as the epicentre of decision-making for an organization. A company’s board of directors (“the Board”), typically composed of a diverse group of individuals with varying backgrounds and expertise, collectively steers the ship, making critical choices that can shape the destiny of the company. Too often we see Boards merely rubber stamping the decisions brought to them by management. However, the decisions made at board meetings have far-reaching consequences, and therefore, the process by which these decisions are made and the impact of liability amongst directors are of paramount importance. We delve into the intricacies of how decisions are collectively made at the board level and shed light on the dynamics that drive these crucial processes.

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How To Prioritise People: A Governance Approach To Minimise Layoffs At Startups

In the backdrop of the recent wave of layoffs at various Indian unicorns and start-ups, organisations need to safeguard their workforce and investor confidence. Writing for Inc42 Media, we discuss how a proactive governance approach that emphasizes ethics, employee well-being, and adaptability, can play a critical role in safeguarding employees’ livelihoods during challenging times.

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Navigating Governance Challenges: Strengthening Non-Profit Organizations in India

India’s social sector has seen substantial growth over the last two decades, with a surge in registered societies collectively valued at approximately Rs.41,292 crore. These organizations have become instrumental in driving social transformation and philanthropic endeavors. However, as the sector expands, it faces a range of governance challenges that require careful legal consideration and analysis.

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Independent Directors: Steering the Governance Wheel

Corporate governance is crucial for the smooth and efficient functioning of a business, and the driving force behind this governance is the board of directors (referred to as “the Board”). However, the Board faces numerous challenges when making executive decisions, particularly when it comes to balancing the interests of various stakeholders in the company.

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WHOSE DIRECTOR ARE YOU ANYWAY?

An experienced VC or PE investor can bring significant benefit to the board of an investee company and help avert governance issues by appointing a nominee director to a company’s board along with negotiated control and voting rights. Nominee directors play a vital role in ensuring the company’s decisions are in the shareholders’ best interest. They bridge the gap between investor and company interests, allowing investors to participate in decision-making and protect their interests.

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Broadening PMLA Reach: Inclusion of Professionals as Reporting Entities

India, as a member of the Financial Action Task Force (“FATF”), is actively participating in developing and promoting policies against money laundering, terrorist financing, and the financing of weapons of mass destruction. In line with FATF's objectives, member countries review each other's anti-money laundering legislations. India is actively prioritizing compliance with FATF Recommendations as its upcoming mutual evaluation is tentatively scheduled for the end of this year. Particularly, Recommendation 22 urges member countries to include lawyers, notaries, independent legal professionals, and accountants involved in the activities mentioned below in Notification dated May 3, 2023 as “Reporting Entities”. Recommendation 22[1] also addresses the treatment of trusts and company service providers as reporting entities.

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FINANCIAL MISCONDUCT AND GOVERNANCE LAPSES: WHY IT’S A WAKE-UP CALL FOR INDIAN STARTUPS

Accurate reporting of financial statements is a pivotal responsibility of a startup and its founders. But the low tide of funding has exposed the dark underbelly of the startup ecosystem in India and often promoter greed and investor appetite for higher valuation are leading to governance failures and bringing companies down.

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SCHEMES OF ARRANGEMENT- SEBI CONSOLIDATES RECENT AMENDMENTS

With a new chairperson in Madhabi Puri Buch, the Securities and Exchange Board of India (“SEBI”) has introduced several regulatory changes. It has, over the course of the past year, tightened the regulatory framework and upgraded decades-old laws. These include regulations on buybacks, the role of mutual fund trustees, alternative investment funds, real estate investment trusts and the investor grievance redressal mechanism.

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Think Tank Recommendations on Corporate Governance for Indian Start-ups

The Recommended Governance Framework for Start-ups is designed to establish a culture of accountability, transparency, and ethical behaviour at all levels of start-ups, thus enabling a self-regulating world class start-up ecosystem.

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UNILATERAL STRIKE DOWN OF COMPANIES’ NAMES AND THE ADVENT OF ‘ZERO REVENUE’ CRITERIA

The Registrar of the Companies (“RoC”) is empowered to strike down the names of the companies in accordance with the provisions of Section 248(1) of the Companies Act, 2013 (“Act”) read with The Companies (Removal of Name of Companies from the Register of Companies) Rules, 2016 (“Strike Down Rules”). Recently, the RoC has been cracking down on the companies which have been violating the provisions of the Act or have been acting as shell companies, and accordingly striking off the names of such defaulting companies from the register of the companies.

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PMLA Amendments - Casting Onus on Practicing Professionals

Money laundering is a global menace that undermines the integrity of financial systems and perpetuates criminal activities. In response and India's commitment to combat this illicit practice, the Prevention of Money Laundering Act, 2002 (PMLA) was enacted. This comprehensive legislation aims to address the offense of legitimizing income or profits derived from illegal sources.

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Incorporation of Company/LLP in India - FAQs

If you are interested in setting up a business in India and have questions about forming a Company or LLP, this booklet provides basic answers to common queries. It is intended to serve as a broad guide to help you make informed decisions about starting and running your business in India. However, please note that the information provided here is generic in nature and should not be construed as legal advice on any specific queries. Indian laws and regulations are subject to change, so it is recommended that you seek professional advice and guidance to ensure compliance with all applicable laws and regulations.

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ESG: The New Age Value Creator

Globally, startups have evolved into the catalyst for economic recovery, reorientation, and growth driven by innovation. As India Inc. is pushing the needle towards achieving the trillion-dollar digital economy goal and has evolved as a hotspot for varied startups, it is imperative for companies to understand the importance of “Environmental, Social, and Governance” or “ESG” in start-ups. The business world is rife with stories of how promoters have lost their management positions due to one terrible incident, which forms the basis of an internal investigation and uncovers a series of incidents pointing to inappropriate behavior. ESG issues are becoming increasingly important for start-ups, as investors, customers, and employees demand more accountability and transparency from companies.

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ACCOUNTABILITY IN THE ACCOUNTING PROFESSION: HOLDING CHARTERED ACCOUNTANTS RESPONSIBLE FOR THEIR ACTIONS

Chartered Accountants (CAs) are professionals who are entrusted with the task of ensuring compliance with financial regulations and safeguarding the interests of stakeholders. They are universally considered to play a crucial role in upholding financial integrity. To ensure that a company complies not only with applicable laws but also with the corporate governance framework, corporate professionals such as CAs act as watchdogs on behalf of the regulators. As such, they are expected to uphold the highest standards of ethical behaviour and ensure adherence to not only the letter but also the spirit of the law.

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Navigating the Legalities of Issuing Convertible Preference Shares under the Companies Act, 2013

A preference share is a type of security that combines characteristics of both equity and debt. Like ordinary shares, preference shares allow holders to receive income in the form of dividends. However, they are also redeemable after a specified period, similar to debentures.luation requirements play a crucial role in the functioning of financial markets across different regulatory regimes. The regulations governing valuation help to maintain the integrity and stability of financial markets, ensuring that investors are protected from fraudulent or misleading practices. While the specifics of valuation requirements may differ across various jurisdictions and regulatory bodies, the underlying principles and objectives remain the same. Investors and financial professionals must stay up-to-date with the latest developments in valuation regulations to make informed decisions and ensure compliance with applicable laws and standards. Ultimately, adherence to sound valuation practices benefits all stakeholders, helping to foster greater transparency, trust, and confidence in financial markets.

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Valuation Requirements Across Different Regulatory Regime: An Overview

Valuation requirements play a crucial role in the functioning of financial markets across different regulatory regimes. The regulations governing valuation help to maintain the integrity and stability of financial markets, ensuring that investors are protected from fraudulent or misleading practices. While the specifics of valuation requirements may differ across various jurisdictions and regulatory bodies, the underlying principles and objectives remain the same. Investors and financial professionals must stay up-to-date with the latest developments in valuation regulations to make informed decisions and ensure compliance with applicable laws and standards. Ultimately, adherence to sound valuation practices benefits all stakeholders, helping to foster greater transparency, trust, and confidence in financial markets.

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“Nano” Compliance: Small Mistakes, Big Consequences

To begin with, compliance with laws and regulations is essential for businesses to operate smoothly and to ensure their legitimacy. This is particularly important in India, where the Companies Act, 2013 (“CA 2013” / “Act”) introduced a significant change in the legal and regulatory framework for companies. Compliance with these laws is crucial as even the smallest mistake (what we call as “nano” compliances) can lead to significant consequences.

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Roc penalizes companies raising funds using crowd-funding platforms

Recently, the RoC, NCT of Delhi and Haryana, passed an order for violation of section 42 of the Act pertaining to private placement of securities. A threshold limit has been set out in the Act that an offer or invitation to subscribe securities under private placement shall not be made to persons exceeding 50 or such other higher number as prescribed by the rules, that is, 200. The same can be substantiated by the Sahara case Further, the Act also states that no company issuing securities through private placement should release any public advertisements or use any media, marketing, or distribution channels or agents to inform the general public about such issues.

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ESOP reporting under new overseas investment regime - Grappling with issues!!

The Ministry of Finance (Department of Economic Affairs) and the Reserve Bank of India (“RBI”) respectively released the Foreign Exchange Management (Overseas Investment) Rules, 20221 (“OI Rules”) and the Foreign Exchange Management (Overseas Investment) Regulations, 20222 (“OI Regulations”). In addition to the introduction of the OI Rules and OI Regulations, the RBI has also issued the Foreign Exchange Management (Overseas Investment) Directions, 20223 (“OI Directions”) which are to be read in conjunction with OI rules and the OI Regulations. (collectively the OI Rules, OI Regulations and the OI Directions read as the “OI Framework”).

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RBI Uniforms the Late Submission Fee – An alternate to FEMA Compounding

The Reserve Bank of India (“RBI”) vide A.P. (DIR Series) Circular No. 16 dated September 30, 20221 (“RBI Circular”) has revised the late submission fee (“LSF”) computation matrix for reporting delays under the Foreign Exchange Management Act, 1999 (“FEMA”), in order to bring uniformity in imposition of LSF across functions.

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Complexities Foreign entities face in setting up their business in India

Since the starting of economic liberalization in India in 1991, India has emerged as a top destination for investments globally. In terms of its economic growth, India is one of the world’s largest and fastest growing economy. While COVID-19 disrupted the growth path in 2020, India is expected to roar back to annual growth of more than 7% each year in coming five years

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DOWNSTREAM INVESTMENTS – A REGULATORY CONUNDRUM

Conceptually, a foreign investor has an option to make investment in India either directly or indirectly through an Indian entity (i.e. a company or LLP) owned or controlled by it. Direct investment by foreign investor in India is known as foreign direct investment (‘FDI’), and where the investments are routed through an entity set up in India, it becomes an indirect foreign investment (popularly known as - downstream investment). For the foreign investors already having presence in India and intend to diversify investments or expand operations through acquisitions, downstream investment could be a better proposition considering that investment and acquisitions undertaken through the Indian subsidiary(ies) attracts relatively lesser compliances, as compared to the FDI. Downstream investment can also be used as an efficient tool for deploying surplus funds of Indian subsidiary to achieve investment goals of foreign investor in India.

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New overseas investment regulations: Fillip in the right direction

The Ministry of Finance (Department of Economic Affairs) and the Reserve Bank of India (“RBI”) respectively released the Foreign Exchange Management (Overseas Investment) Rules, 2022 (“OI Rules”)1 and the Foreign Exchange Management (Overseas Investment) Regulations, 2022 (“OI Regulations”)2. In addition to the introduction of the OI Rules and OI Regulations, the RBI has also issued the Foreign Exchange Management (Overseas Investment) Directions, 2022 (“OI Directions”)3 which are to be read in conjunction with OI rules and the OI Regulations. (collectively the OI Rules, OI Regulations and the OI Directions read as the “OI Framework”).

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SIGNIFICANT CHANGES INTRODUCED UNDER CSR RULES: IMPACT ON CSR PRACTICES

In exercise of the powers conferred under Section 135 and sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (“Act”), the Central Government recently amended The Companies (Corporate Social Responsibility Policy) Rules, 20141 through the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022.2 (“Amended CSR Rules”)

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PN3 – Here for the Long Haul?

The Ministry of Corporate Affairs (“MCA”) recently introduced a slew of amendments which endeavors to implement additional measures to ensure more robust

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MCA mandates additional disclosures for investments and directorship from countries sharing land borders with India

The Government of India through Press Note 3 (2020 Series) dated April 17, 2020 (“Press Note 3”) had amended its Foreign Direct Investment Policy to state that any investment by an entity of a country, which shares ‘land border’ with India, or where the ‘beneficial owner’ of an investment into India is situated in or is a citizen of any such country, can be made only upon seeking prior approval of the Government of India (“GOI”). Press Note 3 also provided that an approval from the GOI is required for direct or indirect transfers of ownership of any existing or future foreign direct investment in an Indian entity, resulting in a change in the ‘beneficial ownership’ falling within the above-mentioned geographic restrictions.

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MCA AMENDS COMPANIES (MEETINGS OF BOARD AND ITS POWERS) RULES, 2014 VIDE GAZETTE NOTIFICATION DATED JUNE 15, 2021

The Ministry of Corporate Affairs (“MCA”) with a view to enhance Ease of Doing Business and to work towards its endeavor for Complete virtualization of Board approval process has omitted Rule 4 of the Companies (Meetings of Board and Its Powers) Rules, 2014 which restricted the Board to deliberate the below mentioned agendas through a Video Conferencing meeting (“VC Meeting”) which meant below agenda could only be discussed at a physically convened meeting.

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LIST OF STANDARD STATUTORY FILINGS ALONG WITH TIMELINES WITH THE REGISTRAR OF COMPANIES / RESERVE BANK OF INDIA

Every company / LLP / liaison office / branch office is required to file various forms, returns and documents with the Registrar of Companies / Reserve Bank of India. We have provided a gist of standard statutory filings for FY 2021-2022 along with timelines below for quick reference.

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COVID-19 AND CORPORATE GOVERNANCE: KEY CONSIDERATIONS FOR THE BOARD OF DIRECTORS

The global COVID-19 pandemic has hit entire country and as of this writing, the number of cases is rising every day in India. Everyone is now well acquainted with the economic downturn and how COVID 19 has impacted our lives. While India and others have been working around the clock to flatten the curve, corporates and business are facing different challenges during this crisis—some are reaching new levels of growth with new opportunity, while others are struggling to survive.

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GOVERNMENT INJECTS MORE FUEL TOWARDS EASE OF DOING BUSINESS IN INDIA

Government introduced the Companies (Amendment) Bill, 2020 (“the Bill”) in the Lok Sabha on March 17, 2020 to further amend certain provisions of the Companies Act, 2013 (“the Act”). Since the notification of the Act in 2013, it has been amended time to time by the Government including

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Process to conduct EGM thorough VC OAVM for a company which is not required to provide e-voting facilities

All applicable sections of the Companies Act, 2013 related to holding general meetings (except those specific to AGM). Rules 18 to 23 of the Companies (Management and Administration) Rules, 2014. and any other rule as may be applicable.

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Process to conduct EGM thorough VC OAVM for a company which is required to provide e-voting facilities

This principle shall not apply to shareholders holding 2% or more shareholding, promoters, institutional investors, directors, key managerial personnel and the Chairperson of the various committees as may be applicable to the companies.

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CORPORATE GOVERNANCE FRAMEWORK - A NEED OF THE HOUR FOR LLPs

The term ‘Corporate Governance’ became a buzzword in early 2000’s due to introduction of series of legal and regulatory reforms by the Indian government to instil and to improve the level of responsibility, accountability, board practices and transparency in conduct of business by the large corporates where the public interest in involved.

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A much-needed breather: Annual General Meeting via video-conference/other audio visual means during calendar year 2020

In wake of worldwide outbreak of Covid-19, MCA with the right intent has issued a clarification on holding of AGM through VC or any OAVM mode via General Circular No. 20/2020.

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