Sebi moots promoter tag for founders holding 10%
Financial Express Mumbai|March 06, 2023
Move would be a blow to professionally managed companies
ASHLEY COUTINHO
Sebi moots promoter tag for founders holding 10%

STARTUPS WANTING TO LIST TO BE HIT

THE SECURITIES AND Exchange Board of India (Sebi) is nudging founders with a stake of 10% or more in their companies to classify themselves as promoters at the time of filing the draft prospectus for public share sales, said two people in the know.

The move could impact companies wanting to go public, especially startups where the founder holding is low, and put the brakes on the growing number of professionally managed companies in India. The promoter tag will also put higher regulatory obligations on the founders.

Until now, founders holding 25% were deemed as promoters by virtue of having negative control and the power to block special resolution. Founders holding a stake below this threshold have the option of not classifying themselves as promoters.

"The promoter has to be identified at the time of filing the draft red herring prospectus. Many times, the issuer will classify itself as a professionally managed company (PMC). Once classified as such, the PMC tag can remain for years to come. Sebi has examined the issue and is now saying that if a founder is not holding 25% but his holding is more than 10%, he should be identified as a promoter," said a person familiar with the matter.

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