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To bring all types of employee benefit schemes under its ambit, a SEBI discussion paper has proposed that trusts set up, managed and financed directly or indirectly by companies, should be regulated. Trusts include those managing general employee benefits such as education, scholarship, medical, retirement benefits such as superannuation, gratuity or any other schemes.
Currently, SEBI regulates only employee stock option plans (ESOP) and employee stock purchase schemes.
Norms relaxed
SEBI observed that the trust mechanism provided better corporate governance. On the anvil is a relaxation in the current norms which prohibit trusts from acquiring shares of the company from the secondary market. However, this move by SEBI would be subject to certain ceilings.
ESOP Trusts may pick up two per cent of equity every year with an overall cap of five per cent. For general employee benefit trusts, the overall limit has been capped at two per cent of equity.
ESOP Trusts cannot hold more than five per cent of equity as un-appropriated inventory (options that are yet to be converted to equity).
Shifting of shares to trusts by promoters or other shareholders has also been mooted. The minimum vesting period would be brought down from one year to six months and would not be applicable to shares transferred to employees on exercise of ESOPs/SARs.
Off-market transfer of shares would not be allowed to any entities except employees. Promoters would not be deemed as employees.
Participation in buyback and open offers would also be allowed and necessary disclosures should be made as per insider trading regulations.
Disclosure norms
Trusts should have an independent trustee and shares held by the trust would be disclosed separately along with the promoter holding. However, the trust would not be subject to the liability/obligations of promoters with respect to open offers, creeping acquisitions and takeover code.
It would only be subject to all disclosures applicable to insiders, including no purchase/sale of shares when the trading window is closed.
When the trust transfers the shares to the employee, those shares would become part of public shareholding.
Trusts however, cannot acquire shares from the secondary market in cases where promoter holding is already 75 per cent and trusts controlled/managed/funded by the company would not be eligible to vote.
raghavendrarao.k@thehindu.co.in
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