SEBI: Promoters’ Children Cannot be Categorised as Public Shareholders

The Securities and Exchange Board of India (SEBI) has said that the kin of promoters may not be considered as public shareholder even if they are leading their lives separately and do not have any say in the company’s management and business affairs. The SEBI informed this through informal guidance sought by Mirza International.

The Red Tape Shoe owner wrote a letter to the SEBI and asked if his daughters, who are married and living separately, who hold voting rights of more than 10% be categorised under the public shareholders instead of the promoter category. He also mentioned that his daughters are not involved in the management of the company. 

Responding to the letter, the market watchdog said that as per the definition of the Issue of Capital and Disclosure Requirements (ICDR), the kin of the promoters (including married daughters) are immediate family members. They are an integral part of the promoter group and hence, cannot be considered as public shareholders. This applies even if the daughters are not involved in the company’s management. 

Rashid Ahmed Mirza, who happens to be the Chairman, M.D and CEO, is planning to gift his two married daughters with his shares and stakes in the company. His daughters currently do not have any stakes in the company and are not involved in the company’s management. Mr Mirza had mentioned these details in his letter to the SEBI.

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SEBI in its response mentioned that as per Regulation 31 (A) (6) of Listing Obligations and Disclosure Requirements (LODR), the shares that are held by the promoter when gifted to any recipient would be considered as a promoter or as an individual who is a part of the promoter group. 

SEBI, in its informal guidance, has also mentioned about the regulation 2(1) of the ICDR. It says that the promoter group consists of immediate family members of the promoter. The informal guidance mechanism of the SEBI is an arrangement in which listed entities can seek legal advice from the market regulator. 

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in