KMP – Is the same defined under the materiality policy of the company?

The term Key Managerial Personnel (KMP) is explained comprehensively under the Companies Act, 2013 (the Act), SEBI Listing Obligations and Disclosure Regulations (LODR) and under the SEBI Issue of Capital and Disclosure Regulations (ICDR).

The term KMP under the Act and SEBI LODR shelters Managing Director (MD), Chief Executive Officer (CEO), Whole-time Director (WTD), Chief Financial officer (CFO) and Company Secretary (CS) as KMP. Moreover, the competency has been given in the hands of Board of Directors (Board) to depute additional people who are in whole –time employment of the Company and are at least one level below the directors as KMPs in an organization structure.

Howsoever, when a Company opts for an Initial Public offer (IPO), the ICDR regulations parallelly get triggered. KMP defined as per ICDR covers the following under its ambit:

·????????Members of the Core Management team other than Board,

·????????Management Team one level below Executive Director,

·????????Functional heads,

·????????KMPs as specified the Companies Act and

·????????Any person who the issuer company declares KMP

So per say, For instance, a Person who is the Head of Marketing (Functional head) would be designated as a KMP as per SEBI ICDR but not as per the Companies Act or LODR.

The listed entity is mandated to make disclosure of events/information to stock exchange under regulation 30 of LODR which are material in the opinion of Board and that includes any changes in KMP. Further, the listed entity is also obligated to determine the criteria of materiality to disclose material events/information.

Ironically, the difference in the definition of a KMP under the LODR leads to a condition wherein resignation of a person listed as a KMP in the draft document need not compulsorily be disclosed to the stock exchanges post listing.

One of a case is of start-up that got listed through IPO – did not announce the resignation of Co-founder and the head of supply at the time of IPO and parallelly was also termed as the KMP under the DRHP and was questioned by stock exchange for nondisclosure with regards to the same.

The KMP mentioned in the prospectus are generally key people in the organization which may or may not be on board and their exit need not be mandatorily disclosed to the stock exchange post listing. Their exit may affect the general public and the nature of the same is price sensitive. These start-up and new aged tech companies may face contentions from the stock exchanges as to why the disclosure was not given. Such situations can be avoided by setting the grounds as to which KMP from the prospectus is material for the listed entity and any change in that structure should be intimated to stock exchange.