SEBI wants startups to name their promoters

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Editor's note: The Securities and Exchange Board of India wants founders with a 10% stake in their companies at the time of an IPO to classify themselves as promoters, according to a report in The Financial Express. The regulator’s move, if it takes effect, could have a bearing on a bunch of startups planning public issues of shares. With private equity investors holding the bulk of shares in many of them, founder stakes have come down to single digits. This will make it difficult to identify a promoter, and possibly delay the process. Also, there is no clarity on whether the new rule will allow clubbing together of founders to be counted as a single promoter. And, finally, can a founder opt out of being called a promoter if they pare their stake before an IPO? In 2019, faced with low founder/promoter stake in startups applying for IPOs, SEBI began drafting fresh rules. The rules allowed these startups to list as professionally managed companies, or PMCs, without anyone being classified as a promoter. It is under these rules that startups like Paytm, …