The Securities and Exchange Board of India (SEBI) is mulling a shift from the ‘outdated’ promoter concept to ‘controlling shareholders’ for listed companies, the Economic Times reported.
The plan, still under works, was discussed during the regulator’s Primary Market Advisory Committee chaired by TV Mohandas Pai, the paper quoted sources as saying.
Moneycontrol could not independently verify the report.
This change in the corporate structure would bring market regulations on par with global practices and ensure that, while the shareholders have power, they do not overshadow the board.
As per present norms, a promoter is an individual or a group of individuals with de facto control of a company, where control implies daily management decisions, etc. SEBI thinks many promoters have little say in how their companies function but still possess ‘nuisance value’, the sources said.
The regulator has also noted that the economy and business drivers have changed and structures need to change with it. This would especially be beneficial to startups, which may not have promoters.
Notably, while this may be seen as a ‘radical’ shift in India, several global markets have already done away with promoters. SEBI is, thus, considering introducing controlling shareholders, with de facto control, but those whose decisions or actions cannot overshadow the board or management.
The shift may reduce compliance and disclosures by listed firms and the promoter or promoter group, corporate lawyers told the publication.
"Moving away from promoters to controlling shareholders is like moving away from a 'family feudal concept to a democratic concept," the source added.