Recently, Confederation of Indian Industry (CII) has launched a corporate governance charter for startups, including a self-evaluative scorecard.This occurs during a period when companies like Byju’s, BharatPe, and Zilingo have expressed worries about governance norms in the last 12-18 months.
Key Provisions of the Charter
- Charter will provide suggestions on Corporate Governance tailored for Startups and offer guidelines suitable for different stages of a startup which is aiming to enhance governance practices.
- Corporate Governance in India is a set of rules, practices and processes by which a company is guided and controlled.
Self Evaluative Governance Scorecard
- The charter includes an online self-evaluative governance scorecard that startups can use to evaluate their current governance status and its improvement over time.
- It will allow startups to measure their governance progress, with score changes indicating improvements in governance practices as assessed against the scorecard from time to time.
4 key Stages of Guidance to Startups
At the Inception stage: The focus of Startup will be on
- Board formation,
- Compliance monitoring,
- Accounting, Finance, External audit, Policies for related-party transactions, and
- Conflict resolution mechanisms.
In the Progression stage: A startup may additionally focus on
- Monitoring key business metrics,
- Maintaining internal controls,
- Defining a hierarchy of decision-making, and
- Setting up an audit committee.
For the Growth stage: The focus will be on
- Building stakeholder awareness towards the vision, mission, code of conduct, culture, and ethics of an organisation,
- Ensure diversity and inclusion on the board and
- Fulfilling statutory requirements, according to the Companies Act 2013 and other applicable laws and regulations.
At the Going Public stage: The Focus of the startup will be on
- Expanding its governance in terms of monitoring the functioning of various committees,
- Focus on fraud prevention and detection,
- Minimise information asymmetry,
- Evaluating board performance.
Startup
- According to (Department for Promotion of Industry and Internal Trade) DPIIT, to be considered eligible for recognition, a Startup must meet these criteria:
- Have been in operation for no more than 10 years since its incorporation.
- Be registered as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership.
- Have an annual turnover not exceeding Rs. 100 crore for any financial year since its incorporation.
- Not have been formed by splitting up or reconstructing an already existing business.
Scenario of Startup in India
- India has the 3rd largest startup ecosystem in the world and is expected to witness Year-on-Year growth of consistent annual growth of 12-15%
- India ranks 2nd in innovation quality with top positions in the quality of scientific publications and the quality of its universities among middle-income economies.
- As of May 2023, India is home to 108 Unicorns with a total valuation of USD 340.80 bn.