Introduction
Going public is a transformative journey for any company, bringing new responsibilities, higher scrutiny, and the need for stronger governance structures. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) and the Companies Act, 2013 mandate listed entities to constitute key board committees to ensure compliance, risk management, and investor protection.
For companies preparing for an IPO, establishing these committees in advance is crucial to avoid last-minute regulatory hurdles. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR) also require disclosure of governance frameworks, including committee compositions, in the Draft Red Herring Prospectus (DRHP).
In this article, we’ll break down the composition, functions, and legal requirements of key board committees—Audit, NRC, SRC, RMC, and CSR—and provide guidance on how companies planning an IPO can set up these governance structures for a smooth listing process.
In the table below we will take a look at the overview of the committees:
| Committee | Composition Requirement | Meeting Frequency | Key Roles & Responsibilities | Relevant LODR Regulation |
| Audit Committee | At least 3 directors, At least two third of the members shall be independent directors, All members should be financially literate Chairperson- Independent director | At least 4 times a financial year – not more that 120 days shall elapse between two consecutive meetings | Approval of financial results, and RPTs. Oversight of internal controls, Role in vigilance framework | Regulation 18. |
| Nomination & Remuneration Committee (NRC) | At least 3 non-executive directors,at least 2 /3 rd of the directors shall be independentChairperson- Independent Director | At least once a financial year | Deciding upon appt. /reappt of senior management and KMP.Performance evaluation of directors | Regulation 19 |
| Stakeholders Relationship Committee (SRC) | At least 3 directors, with at least 1 independent director | At least once a year | Handling investor grievances,complaints resolution | Regulation 20 |
| Risk Management Committee (RMC) | Majority of members from the board of directors.At least one independent directorChairperson- Member of the boardSenior executives may be members of committee | At least once in six months (not more that 210 days elapsed between two consecutive meetings) | Identifying and mitigating risks,compliance with risk policies | Regulation 21 |
| CSR Committee | At least 3 directors, including 1 independent director (if applicable) | At least once a year | Preparation of annual action plan.Monitoring CSR initiatives undertaken by the company. x | Section 135 of Companies Act, 2013 |
Understanding the Audit Committee’s Role
The Audit Committee is one of the most critical pillars of corporate governance for a listed company. Its primary job is to ensure financial transparency, accountability, and compliance but its influence goes far beyond just checking the books. From overseeing financial reporting and approving related party transactions (RPTs) to appointing auditors, the committee plays a crucial role in maintaining investor trust.
One of its key post-listing responsibilities is monitoring fund utilization, ensuring that money raised in the IPO is used for its intended purpose. Regulation 32 of LODR mandates companies to disclose any deviations in usage of proceeds from public issue, and the Audit Committee must keep a close watch on this to prevent financial mismanagement.
Audit Committee’s Role in Vigilance
SEBI LODR in schedule II specifies terms of reference of audit committee. Terms of reference provides for list of things that needs to be placed before audit committee. Post listing company needs to ensure that these terms of reference are followed. Further post listing all related party transactions need to be approved by audit committee prior to the transaction being entered. Company once listed needs to ensure that all related party transactions as would be covered within regulation 23 needs to be approved by audit committee. Audit committee is also required to look into vigil mechanism. Hence companies need to ensure that they have vigil mechanism in place.
Understanding the Role of the Nomination and Remuneration Committee (NRC)
NRC plays a crucial role in shaping a company’s leadership and governance. Beyond deciding pay structures, it ensures the board and senior management have the right skills, experience, and independence to drive long-term growth.
More than just selecting directors, the NRC oversees board diversity, succession planning, and performance evaluation. It also assesses independent directors’ suitability, ensuring their appointment aligns with the company’s strategic needs, as outlined in Schedule II, Part D of SEBI (LODR) Regulations, 2015.
Post-listing, the NRC’s key responsibility is conducting an annual evaluation of the board and independent directors while ensuring remuneration policies are fair, transparent, and aligned with shareholder interests. Given the increased scrutiny on listed companies, a well-structured NRC is essential for maintaining investor confidence and regulatory compliance.
Understanding the Role of the Stakeholders Relationship Committee (SRC)
The Stakeholders Relationship Committee (SRC) ensures that shareholders’ concerns are addressed efficiently, strengthening investor trust in a listed company. Its primary role is to resolve investor grievances, including issues related to share transfers, dividends, and corporate communication.
Beyond grievance redressal, the SRC also reviews measures to enhance shareholder participation in decision-making, ensures adherence to service standards of the Registrar & Share Transfer Agent (RTA), and takes steps to reduce unclaimed dividends. Given the increased investor interactions post-listing, the SRC becomes even more critical in ensuring smooth communication between the company and its shareholders.
Understanding the Role of the Risk Management Committee (RMC)
The Risk Management Committee (RMC) is essential for identifying, assessing, and mitigating risks that could impact a company’s operations and financial health. While its role is mandated for the top 1000 listed entities and high-value debt listed entities, every company planning an IPO should proactively establish a risk management framework.
The RMC formulates and oversees risk management policies, ensuring a structured approach to handling financial, operational, ESG, cyber security, and other industry-specific risks. It also monitors the business continuity plan, ensuring that the company can sustain operations during unforeseen events.
To ensure a seamless transition into the listed space, companies must proactively establish strong governance, compliance, and risk management frameworks.
Conclusion
The following key steps summarize the essential measures companies should take for IPO preparedness:
- Audit & Vigilance Framework
- Reconstitute the Audit Committee in advance, ensuring compliance with LODR composition requirements.
- Establish a vigilance framework, including whistleblower mechanisms, fraud detection systems, and independent audits.
- Schedule the first Audit Committee meeting post-listing to approve financial results and assess financial risks.
- Board Composition & Remuneration
- Reconstitute the Nomination and Remuneration Committee (NRC) with the right mix of skills, experience, and independence to comply with provisions of SEBI (LODR).
- Define clear policies for director and senior management appointments, ensuring diversity and governance best practices.
- Ensuring to have a nomination and remuneration policy for directors and senior management appointments, reappointments to ensure diversity.
- Set up a board evaluation mechanism to ensure accountability and periodic performance reviews.
- Shareholder & Investor Protection
- Constitute the Stakeholders Relationship Committee (SRC) to oversee shareholder grievance redressal and investor relations.
- Establish an efficient grievance redressal mechanism in coordination with the Registrar & Transfer Agent (RTA) for share transfers and dividend processing.
- Risk Management & Compliance
- Formulate a risk management policy, identifying key risks including financial, regulatory, operational, and cyber risks.
- Establish internal controls to monitor and mitigate risks effectively.
- Ensure board awareness by keeping directors informed about risk-related discussions and oversight.
By integrating these practices early, companies can strengthen investor confidence, enhance corporate governance, and navigate the post-listing phase smoothly, ensuring sustainable growth in the capital markets.
This article has been published on Taxmann. The link for the same