The Securities and Exchange Board of India (SEBI) has proposed doing away with the concept of promoters and moving to ‘person in control.’
- It has also suggested reducing the minimum lock-in periods post a public issue for promoters and pre-Initial Public Offering (IPO) shareholders.
- SEBI is a statutory body established in April, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
- The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.
- The meaning of ‘promoter’ and ‘promoter group’ is defined in Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.
- Generally, a promoter conceives an idea for setting-up a particular business at a given place and performs various formalities required for starting a company.
- Promoter group includes:
- Any body corporate in which a group of individuals or companies or combinations thereof acting in concert, which holds 20% or more of the equity share capital in that body corporate and
- Such a group of individuals or companies or combinations thereof also holds 20% or more of the equity share capital of the issuer and is also acting in concert.
An issuer is a legal entity that develops, registers, and sells securities to finance its operations.
Promoter to Person in Control Concept:
- The shift is necessitated by the changing investor landscape in India where the concentration of ownership and control rights do not vest completely in the hands of the promoters or promoter group because of the emergence of new shareholders such as private equity and institutional investors.
- Investor focus on the quality of board and management has increased, thereby reducing the relevance of the concept of the promoter.
- The current definition focuses on capturing holdings by a common group of individuals or persons and often results in capturing unrelated companies with common financial investors.