However, being classified as a promoter of an investee company (Company) may not be favourable for a PE investor especially for those investors targeting the IPO as an exit route from the company. There are also onerous disclosure requirements on promoters with respect to disclosures in the prospectus so that the general public has adequate information on the company for deciding whether to invest in the IPO or not. To ensure their ‘skin in the game’ after the IPO, the ICDR place various obligations on the promoters such as a 20% minimum shareholding in the post-issue share capital of the company and lock-in restriction of three years on such shareholding. The identification of promoters is crucial in the listing process as the ICDR places substantial responsibilities on the Promoters. Obligations on Promoters under SEBI Regulations The definition is similar to the definition in the Companies Act, 2013 and provides that a financial institution, scheduled commercial bank, foreign portfolio investor other than individuals, and the other specified body corporates shall not be deemed to be a promoter merely by holding 20% or more of the equity share capital of the issuer unless such person satisfies other requirements prescribed under the regulations. The Regulation 2 (1) (oo) of ICDR defines the term ‘promoter’. The term ‘Promoter’ is defined under ICDR and various other SEBI regulations has the reference to the definition as given in ICDR. ![]() Further, those person(s) in accordance with whose advice, directions, or instructions the Board of Directors of the company is accustomed to act, except in case of a person acting in a professional capacity, would also be considered as a promoter of a company. The definition also covers person(s) who has control over the affairs of the company, directly or indirectly whether in the capacity of a shareholder, director, or otherwise. Under the Companies Act, 2013, a promoter is a person who has been named as such in the prospectus or is identified by the company in the annual return filed every year. ![]() They bring the business idea into existence and sets the vision and growth targets. Generally, any person who plays a major part in forming a company or establishing its business usually the prospective owners or directors of the company is regarded as a Promoter. In this write-up, we have made an analysis of the concept of Promoter and Promoter Group, various obligations of the Promoter under SEBI Regulations, and the rationale for the shift from ‘Promoter and Promoter Group to ‘Person in Control’ Who is a Promoter? The start-up ventures and the most celebrated ‘unicorns’ of the industry have substantial investment from Institutional investors and Private Equity players (‘PE firms’) who exercises control over the decision-making process through board representation and other means.įurther, SEBI has also proposed changes to the existing lock-in period requirements, streamlining disclosures of group companies, and rationalising the ‘Promoter Group’ definition in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (‘ ICDR’). The proposal has come in the light of a drift from the conventional Indian ownership structure to the contemporary ownership structure where more than one person or persons controls an entity. The capital market watchdog, Securities and Exchange Board of India (‘SEBI’) has come out with a consultation paper on changing the concept of company ‘promoters’, and moving towards the idea of ‘person in control’. ![]() ![]() Proposes shift from ‘promoter’ to ‘persons in control’
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