Sebi cracks whip on IPO promoter classification

The Securities and Exchange Board of India (Sebi) has intensified its scrutiny on promoter classification of companies looking to go public, with the markets regulator’s observations prompting at least six companies in the past three months to include individuals or entities as promoters, according to three people familiar with the developments and filings reviewed by Mint.

- Pavan Burugula & Varun Sood

Questions were recently raised by securities lawyers and proxy advisory firms on founders of money-losing startups continuing to retain control of the companies even though they classified themselves as public shareholders. The issue of founders enjoying the perks of being a promoter without being classified as one was thrust into the limelight after Paytm founder-chief executive Vijay Shekhar Sharma decided to acquire an additional 10.3% in the company from Ant Group.

Sharma is a non-retiring director on the board of Paytm parent One97 Communications Ltd, chairman of the company, and has a right to a board seat as long as he holds at least 2.5% of the company, things which securities lawyers believe give him control of the company. But Sharma does not call himself a promoter of Paytm.