Whalesbook
Regulatory Hurdles for Family Succession
Promoter families have petitioned the Securities and Exchange Board of India (Sebi) to broaden the definition of "relatives" in its takeover regulations, a move they argue is crucial for effective succession planning and trust-based ownership in family-run listed companies. The current Sebi takeover regulations exclude sons- and daughters-in-law from the definition of "immediate relatives," a distinction that differs from income tax laws which recognize them for gifting purposes. Advisers highlight this regulatory gap creates unnecessary obstacles for promoters transferring shareholdings to family trusts as part of long-term succession strategies.
Over the past decade, many business families have established private family trusts with beneficiaries for their promoter holdings. Under Sebi’s takeover code, acquiring 25% or more shares or control typically triggers an open offer to public shareholders. Sebi grants exemptions for share gifts to family trusts, but only if trustees are recognized relatives. Daughters-in-law are excluded, compelling promoters to seek individual regulatory exemptions for such transfers. This has led numerous business families to approach Sebi for relief.
Historical Exemptions and Evolving Needs
Sebi has historically granted case-specific exemptions for promoter share transfers to family trusts in companies like PI Industries, Prince Pipes & Fittings, and Everest Kanto Cylinders, provided control and public shareholding remained stable. Similar approvals were given for Jyothy Labs and Borosil Glass Works. However, these ad-hoc approvals highlight a structural deficiency in the rules. Experts argue the regulations need modernization to align with contemporary family and governance structures, reducing the burden of repetitive exemption requests.
The rigidity extends to sub-trust structures and transfer restrictions from newly listed companies. The contrast with tax law, where gifts to sons- and daughters-in-law are tax-exempt, sharpens the issue. Promoter families seek a straightforward update to reflect contemporary family and governance structures, reducing the need for exemptions that may no longer serve clear investor-protection purposes.