What is general corporate purpose, why it is under SEBI lens?

While filing for an initial public offering or IPO, companies come out with red herring prospectus also known as offer documents with details of the IPO. It contains information such as amount to be raised and purpose, meaning how the company plans to utilize the funds raised from the IPO

Before we understand GCP, let us have a look at various reasons the company may want to raise funds. It includes giving liquidity to its shareholders, like founders, PE investors and employees. Companies also raise funds from IPOs for branding and visibility or to take advantage of higher valuation.

Most companies also mark the funds for the general corporate purpose or GCP. The current rules allow companies to raise up to 25 per cent of their IPO proceeds under a vague head of general corporate purpose (GCP).

The market regulator, SEBI, in its consultation paper, has said that raising funds for unidentified acquisitions leads to some amount of ambiguity in the IPO objects.
 
With an objective to bring in more transparency and accountability, SEBI has proposed several key changes.

It wants to limit funds utilized for inorganic growth, such as mergers & acquisitions to 35 per cent, where the target for the acquisition or the strategic investment is unidentified. It also wants companies to make detailed quarterly disclosures about usage of funds raised for GCP
 
The proposed norms may make it difficult for new-age companies to raise funds. These companies often need funds for acquiring new customers and expanding to new markets. The consultation paper was open for general public feedback till November 30.

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