Has “promoter” as a concept outlived its usefulness?
▪ There are increasingly greater numbers of promoter-less companies, with many traditional companies and many new companies becoming promoter-less.
▪ Regulators are grappling with the distinction between promoters and founders. As corporate India raises more capital both from public market investors and/or private equity investors, promoters and founders will get diluted and there will be many more widely held companies.
▪ Regulations need to consider that the rights and obligations of promoters are less onerous than the rights and obligations of the Board as a collective and the rights of shareholders. An individual’s roles as a “founder” or a “promoter” or a “managing director” need to be considered as transition of corporate development.
▪ As new-age companies that seek access to venture capital and private equity capital transition to listed companies, the founders’ shareholding will get significantly reduced. Hence the role of the Board becomes important.
▪ The issue of ESOPs to founder promoters who have now transitioned to single digit shareholdings should not be separately regulated as current regulations sufficiently empower the Board and shareholders to approve such issuances.
▪ SEBI regulations impose a minimum public shareholding of 25%, but there are no regulations on minimum promoter holding. A person is considered a promoter if his/her holding is greater than 10% in a company, though institutions are exempt from this requirement.
▪ Dominance of and/or powers of any shareholder or group of shareholders in control is what needs greater scrutiny. A shareholder may be able to exercise control through rights that are embedded in the Articles of Association, and these are now subject to vote by shareholders.