Startup Founders Embrace 'Promoter' Tag Amidst SEBI's Governance Push

Startup founders are now actively choosing to be classified as 'promoters' for their companies during listings, a notable departure from the 'professionally managed' tag previously favored. Companies like Lenskart, Urban Company, Ather, and Bluestone are leading this change, where founders like Peyush Bansal of Lenskart are embracing the promoter title to ensure their continued commitment. This contrasts with earlier listings such as Paytm, Zomato, iXigo, and Delhivery, which were registered as professionally managed.

The 'promoter' status in India comes with significant statutory responsibilities, traditionally associated with family-run businesses. Founders initially avoided this tag due to perceived liabilities, lower shareholdings post-funding rounds, stringent SEBI rules like Minimum Promoter Contribution (MPC), and restrictions on holding Employee Stock Options (Esops). Investors, however, prefer the promoter-driven stability and accountability they provide.

SEBI has recently made critical adjustments to encourage this shift. These include reducing the post-IPO lock-in period for MPC from three years to 18 months and adopting a more pragmatic 'person in control' concept. Crucially, SEBI clarified founders' eligibility for Esops granted at least a year before their classification as promoters.

Impact: This renewed focus on the promoter tag by SEBI means founders are now the primary individuals held responsible for company compliance and long-term interests. It reassures investors about founders' commitment and aligns their interests with public shareholders, enhancing overall corporate governance in the new-age tech sector.

Definitions: Promoter: A person or entity that exercises control over a company's affairs. Sebi: Securities and Exchange Board of India, the regulatory body for securities markets in India. Minimum Promoter Contribution (MPC): The minimum percentage of post-IPO shares that promoters must hold. Employee Stock Options (Esops): Options granted to employees, allowing them to buy company shares at a predetermined price. Stock Appreciation Rights (SARs): A form of compensation that gives employees the right to receive cash or stock for the appreciation in the company's stock price over a certain period. Prohibition of Insider Trading Regulations: Rules prohibiting the trading of securities based on material non-public information. Related Party Transactions (RPTs): Transactions between a company and its related parties (e.g., promoters, directors) which require transparent approval. Dual-class share structures: A corporate structure where different classes of shares have different voting rights, allowing founders to retain control even with diluted ownership.